It’s no secret that the technology sector has outperformed its counterparts in energy and finance, but the degree to which this divergence has occurred is extreme. Technology has outperformed energy by more than 60% in 2020, which is far beyond the normal yearly push and pull between these markets of +/-26% going back to 2000. And the year isn’t over yet.
History of Sector Rotation
The last decade has shown a consistent bull market for stock indexes at large, but the sector breakdown tells a story that’s much less consistent for energy. Oil and gas companies have had a hard time lifting off of unchanged since 2010, and they’ve seen a recent bout of selling this year as technology stocks continue to move through all-time highs.
The decade prior, however, tells a different story. Energy spent the majority of 2000 to 2010 stacking up hundreds of points of gains on the tech sector. Prior to 2008’s crash, the energy sector looked a lot like technology does currently. So what will the next decade look like?
Planning for the Future
Since sectors rotate in and out of fashion often, most investors combat potential shake ups by diversifying across all sectors. Unfortunately, major equity futures such as the S&P 500 (/ES) and Nasdaq (/NQ) are now heavily invested in the technology sector, 24% and 45% weightings respectively. Small Stocks 75 (/SM75) offers near-equal exposure in tech, materials, industrials, financials, and energy allowing traders to both reduce risk of a concentrated portfolio and avoid missing out on the next trend.