Industrials and Technology: Two Roads Diverging

by Bespoke Investment Group

The overall market is only modestly down in the last three weeks, but there have been some major shifts in sector leadership. The most notable among these shifts is the decline in the leadership of the Industrials sector. Relative to the S&P 500, Industrials have fallen off a cliff and are now near peak levels of underperformance in the last year.

While Industrials have seen notable weakness in recent weeks, Technology has seen a sharp rebound and has essentially erased all of its underperformance over the last year. Given the fact that both Industrials and Technology are considered cyclical in nature, it seems odd that both sectors are moving in completely opposite directions, although one could make the argument that Industrials are more tied to capital intensive companies while Technology is typically tied to companies that enhance productivity.