Tech And Communications Still Lead US Equity Sectors In 2023

There’s no shortage of things to worry about in the months ahead, but you wouldn’t know by reviewing year-to-date returns for the leading equity sectors. Tech and communications services are still red-hot this year, leaving the rest of the field – the stock market overall – in the dust, based on a set of ETFs through yesterday’s close (Apr. 26).

Technology Select Sector SPDR Fund (XLK) remains top dog by far with a sizzling 17.7% total return year to date, a world above the broad market’s 6.1% gain via SPDR S&P 500 (SPY).

Communication Services Select Sector SPDR Fund (XLC) is a strong second-place performer with a 17.3% gain in 2023.

Most of the sectors, by contrast, are under water this year. The deepest loss, unsurprisingly, is in finance. Due to spillover effect from rising interest rates and the recent turmoil in the banking sector, Financial Select Sector SPDR Fund (XLF) is down more than 5% this year. Although the collapse of several regional banks appears contained, blowback looks set to continue as First Republic Bank may be set to slip over the edge.

“It’s becoming clearer each day” that First Republic is “toast,” notes Don Bilson at Gordon Haskett, a researcher firm, in a note to clients on Wednesday. “The only question that really needs to be answered is whether the [Federal Deposit Insurance Corporation] moves in before the weekend or during the weekend, which is when it usually does its thing,” CNN reports. If true, the news will deliver another shock to the banking industry.

Despite the strong gains in tech and communications services this year, upside momentum for the equity sectors overall remains mixed. Using a set of moving averages to track trend strength points to generally weaker performance ahead for stocks generally vs. recent history, echoing the view from a month ago.

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By James Picerno