As we noted in today’s Morning Lineup, sector performance has heavily favored areas like Tech, Consumer Discretionary, and Communication Services in recent weeks. Playing into that sector level performance has been the strength of the mega-caps. The NYSE FANG+ index tracks ten of the largest and most highly traded Tech and Tech-adjacent names. In the past several days, that cohort of stocks is breaking out to the highest level since last April whereas the S&P 500 still needs to rally 4% to reach its February high.
Although FANG+ stocks have been strong recently, that follows more than a full year of underperformance. As shown below, relative to the S&P 500, mega-cap Tech consistently underperformed from February 2021 through this past fall. In the past few days, the massive outperformance has resulted in a breakout of the downtrend for the ratio of FANG+ to the S&P 500.
More impressive is how rapid of a move it has been for that ratio to break out. Below, we show the 2-month percent change in the ratio above. As of the high at yesterday’s close, the ratio had risen 22.5% over the prior two months. That comes up just short of the record (22.6%) leading up to the pre-COVID high in February 2020. In other words, mega-cap Tech has experienced near-record outperformance relative to the broader market. However, we would note that this is in the wake of last year when the group had seen some of its worst two-month underperformance on record with the worst readings being in March, May, and November.
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