Why The Tech Sector Is Likely To Lead A Market Decline

Be forewarned. Knowing what to avoid should a market correction take over can be just as important as knowing what to buy in a rally.

It’s no secret that the economy faces an already high and growing wall of worry. The list goes on and on; rising inflation, rising global interest rates, record budget deficits, tumbling global stock markets, a housing industry dropping further into a dark hole, consumer confidence declining again, political unrest in the Arab world, political animosity in the U.S.

The economic and political concerns make for shaky ground under the stock market as it approaches its unfavorable season, often a disheartening period anyway. The quick return of extremely bullish investor sentiment after only a two-week bounce-back rally is not reassuring either.

The U.S. market seemed to top out in mid-February under the weight of the negatives, and then potentially recovered.

41211b

But the market leadership in the bounce-back has come primarily from commodity and energy related plays as the price of oil has spiked up, while previous leadership has waned.

The tech sector is a sector that now looks like it could lead on the downside in a market correction. It has lagged the rest of the market in the bounce-back rally, retracing only 50% of its decline from the mid-February top.

41211c

There is also anecdotal evidence, such as the recent warning from the world’s largest technology company, and second largest maker of mobile phones, Samsung. It warned that weak sales in its first quarter dropped its operating profits to a two-year low.

Meanwhile, Standard & Poor’s Equity Strategy Group downgraded the tech sector on Monday, from ‘market overweight’ to ‘market weight’, saying the tech group “has recently begun exhibiting more lackluster performance as the global economic cycle matures.”

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.