XLK: What's Driving The Trading Turmoil In Tech

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Technology was the big market laggard again on Wednesday following disappointing earnings and more software anxiety. 7 of the 11 sector SPDRs were higher on the day, but the State Street Technology Select Sector SPDR Fund (XLK) lost 2.8%, writes Tom Essaye, president of the Sevens Report.

While tech was very weak, the “rest of the market” did relatively well. The Invesco S&P 500 Equal Weight ETF (RSP) rose more than 0.8%, and it has remained a very quick and easy way to diversify away from tech while maintaining high-quality large-cap exposure.

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The reason for the weakness was a combination of disappointment in semiconductor earnings and weakness in the memory stocks. On the flip side, the State Street Materials Select Sector SPDR ETF (XLB) and State Street Energy Select Sector SPDR ETF (XLE) were the best-performing sector funds, rising around 2.3% each thanks to a surge in energy commodities.

Defensive sectors also had a strong day – not because of anything specific, but instead because defensive sectors are some of the beneficiaries of money rotating out of tech. Bottom line, tech pressure has remained the theme of this market while the “rest of the market” has continued to trade generally well.

At this point, the negativity surrounding AI-related tech is getting pretty intense, too. Granted, there are reasons for the skepticism. But the declines in some of these stocks are substantial. If AI is more resilient than expected (which has been the case in each test so far over the past three years), then there likely are opportunities developing.

About the Author

Tom Essaye is president of the Sevens Report, which he founded in 2012 with a singular mission: To combat the information overload facing financial professionals and provide research that helps them become more efficient and effective. The company began with a single product, The Sevents Report. This is a daily economic report that covers essential market information for stocks, bonds, currencies, commodities, and economic data.

Since 2012, the firm has expanded its research offerings to provide a comprehensive research solution for today's financial professionals. The firm now also offers an investment idea-focused product, Sevens Report Alpha, a client communication solution, Sevens Report Quarterly Letter, and a chart-based product, Sevens Report Technicals.

Mr. Essaye has earned a national reputation for his straight-forward, plain-English, and accurate market analysis. He has been a frequent guest on CNBC, Fox Business, Bloomberg, and Yahoo Finance and is widely quoted in the Wall Street Journal, Barron's, Morningstar, New York Times, USA Today, Marketwatch, Axios, NASDAQ, and Bloomberg. Tom is a graduate of Vanderbilt University and has an MBA from the University of Florida.

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