The S&P 500 Technology sector is up huge today, rallying 2.6% on a day when the S&P 500 as a whole is only marginally higher. As shown below, the sector has moved up into the stratosphere compared to its normal trading range. At this point in time, the sector is trading three standard deviations above its 50-day moving average. These kinds of overbought levels don’t last long, as either a pullback in price occurs or moving averages start to play catch up.
The move higher in the Tech sector has caused its weighting in the S&P 500 to balloon up to 24.2%. That’s almost ten percentage points larger than the 2nd largest sector in the S&P 500 — Financials. It’s also more than 12x as large as the smallest sector in the index — Telecom. Finally, Tech is now just as large as the smallest SIX sectors in the S&P.
Below is a chart showing Tech’s weighting in the S&P 500 going back to 1990. You may not know it, but Tech was actually the SMALLEST sector in the S&P back in 1991. My how times have changed!
If it provides any comfort, while 24.2% is a huge weighting, keep in mind that it’s still 10 percentage points lower than the weighting Tech saw at the end of the Dot Com boom back in the late 1990s. At Tech’s peak back in March 2000, it had a record 34.81% weighting in the S&P. Even still, Tech’s weighting of 24.2% now was only seen for a few months at the very tail end of the Dot Com boom. It didn’t reach 24.2% until November 1999. At that point, the Tech Bubble only had four months to go before the epic crash occurred.
We know times are different now, but we definitely get a little uneasy when we see one sector taking up basically a quarter of the entire market. It’s not healthy in our view.