- Year-to-date, technology has outperformed the broader market largely given the prevalence of low leverage, high profitability and consistent earnings across many names in the mega-cap tech space.
- Technology serving as a haven in periods of market volatility is a distinct change to the late 1990’s where the sector was the source of the volatility.
- This change is driven by large-cap companies being more mature, less volatile, with an ability to generate consistent profitability. These quality characteristics may continue to be in demand by investors in an environment of decelerating economic growth.
Equities have officially entered a correction. Both global and domestic stocks have fallen by at least 10% below their summer peak. Volatile portions of the market, notably small-cap and early-growth companies are down far more. And while large-cap technology companies have not been immune to the weakness, for the most part they have held up better than the broader market. I think this can continue as investors put a premium on higher-quality, companies with the ability to generate cash flow.
Since the summer peak, the global technology sector has outperformed and remains the top performer year-to-date (see Chart 1). Tech’s resilience owes much to the fact that the mega-cap tech names tend to have low leverage, high profitability, and consistent earnings. In other words, they are high-quality companies.