S&P 500 Forecast: Tech Sector ETF Sees Highest Demand In A Year

The S&P 500, Nasdaq 100, and Dow Jones are well-positioned to climb higher after the March FOMC meeting fulfilled bullish expectations and opened the door to a continued rally in risk assets. While US Treasury yields may continue to rise and create headwinds for some sectors of the stock market, investors were eager to pile into an area of the market that has been particularly weak nonetheless.


S&P 500 technology sector price chart

To that end, exchange-traded fund flow data reveals the S&P 500 technology sector-tracking XLK ETF clocked its largest single-day inflow since March 10, 2020, on Wednesday as the Fed reaffirmed its policy path. The fund differs considerably from the Nasdaq 100-tracking QQQ ETF because it lacks exposure to some of the S&P 500’s largest corporations that are frequently considered technology stocks but do not fall within the technical criteria of the sector.

Alphabet and Amazon, for example, are technically classified as members of the communication services and consumer cyclical sectors respectively. As a result, Apple and Microsoft are the only mega-cap companies included in the XLK ETF.


nasdaq 100 etf price chart

The QQQ ETF, on the other hand, registered modest outflows Wednesday. While analyzing discrepancies between two technology-heavy funds cannot fully encapsulate the market’s intentions, it might help highlight investor sentiment surrounding the mega-cap stocks. That said, it would seem Apple, Amazon, Alphabet, Microsoft, Facebook, and Tesla – stocks that dragged the broader indices higher from the depths of the coronavirus crash – remain out of favor as investors seek exposure to technology stocks outside the giants.

Consequently, there may be evidence to suggest the reflation trade that has seen the Dow Jones outpace the Nasdaq 100 will continue. While the longer-term outlook for all three indices is encouraging, weakness in some sectors may create hedging or pair-trading opportunities.

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