Markets may not have to rely so much on technology to make a profit. New leaders emerge

Big Tech took a beating after disappointing earnings from Microsoft and Alphabet, but strategists say the market hasn’t been as reliant on the sector as it has in the past to drive overall gains. Strategists have looked to see if the stock market low on Oct. 13 will be the low for the current cycle, or if it’s just a bear market low. Stocks’ performance since then shows a different type of leadership, and some of those names could be the leaders of the next step up. “Energy has been strong all year. The shift from the lows has been driven by non-tech sectors,” said Scott Redler, Chief Strategic Officer of T3 Live. He said financial institutions and airlines have also helped drive the market up. But strategists also say that tech will eventually have to participate in order for stocks to continue to make real profits. “If tech delivers, we’d move faster, but if it doesn’t deliver, it’s going to be hard to get past 4,000, 4,100 on the S&P 500. That would be a valuation cap,” Redler said. Alphabet fell more than 9% on Thursday and Microsoft closed 7.7%. Both stocks had hit new lows as the S&P 500 hit a low of 3,491 on Oct. 13. After Wednesday’s closing bell, Meta Platforms fell more than 18% in after-hours trading due to disappointing earnings and a weaker forecast. But the overall market was higher on Thursday, even as the Facebook parent company’s shares cratered. A climb from the bottom of October 13? Oppenheimer technical analyst Ari Wald said there have been 23 bull cycles since 1932 and the technology outperformed in 20 of them. “It’s the most offensive sector. … If we’re right about our bull market call, it would make sense for technology to participate and do well as a result,” he said. Wald has said the October 13 bottom could signal a new bull market has begun. He envisions that energy will continue to lead, and that industry will continue to rise and be a leader. Technology is a third sector he ultimately expects to lead. “They’re not the leaders now. They still offer long-term rotational potential, because I think they’ll take a leadership role once rates are moderate,” Wald said. Apple, which reports earnings on Thursday, held up much better than many other tech names and was up about 8.1% for October as of Wednesday afternoon. The stock fell nearly 2% during Wednesday’s technical rout. Amazon, also reporting after Thursday’s bell, is up 2.3% this month, though the e-commerce giant is down more than 30% in 2022. The Technology Select Sector SPDR Fund ETF, which represents the S&P information technology sector, is up 5.8% in October. The SPDR for the selected communications services sector is up 4.8% this month. The communications services sector includes Meta and Alphabet. By contrast, the Energy Select Sector SPDR Fund is up 23% in October and the Industrial Select Sector SPDR Fund is up more than 10%. Looking for healthy signs of breadth “I think it’s perfectly normal to see other stocks pick up the slack in a new leg higher. That’s what you need to see,” said Bespoke co-founder Paul Hickey. He said technology has not performed badly before Wednesday. Apple has held up from its lows and is in line with the market. “One of the things we highlighted is the fact that at the most recent low earlier this month you saw the S&P fall 4% below the June lows, but the percentage of stock falling didn’t increase,” Hickey said. . . “It was smaller than the number we saw in June. It just shows there’s more width.” He said there is a debate in the market as to whether it is positive or negative that big-cap technology is in the lead, given that there are so few mega-cap stocks in the lead. “You want to see broad participation so that a handful of stocks don’t lead the market. That’s a healthy sign of internal breadth,” he said. He said earnings week for Big Tech can be rocky for the market if there are misses. Investors look forward to Apple’s gains after Thursday’s closing bell. “If it doesn’t go well, it will impact the market just because of the sheer weight, but I don’t think Apple is the only one for the market,” he said. Hickey said one sector that seems to be on the rise is manufacturing. “In the earnings season, one of the sectors with the highest negative revision rate was industry,” he said. “The pace of analyst revisions is often inversely correlated with the market during the earnings season.”

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