Technology stocks have been on fire lately.
Of course, you know that. You know that because everybody is talking about it.
All the talking heads on the financial networks are talking about how stocks like Microsoft, Apple, and NVIDIA have been screaming higher – and leaving the rest of the market behind.
They’re talking about how just a few of the technology names are responsible for all of the gains in the S&P 500 this year. And that you need to own these names or else risk being left behind.
What they don’t tell you is the train has already left the station.
It’s too late to chase these stocks now.
Take a look at this ratio chart that compares the Technology Select Sector Fund (XLK) to the S&P 500…
This chart tells us how the technology sector is performing relative to the S&P 500.
When the chart is moving lower, the technology sector is underperforming the S&P 500. When the chart is moving higher, tech stocks are outperforming.
You can see how strong the technology sector has been compared to the broad stock market so far this year. What you can’t see, though, is how severe this move has been compared to history.
To get that picture, let’s go back a few years.
Here’s a 25-year chart…
Relative to the S&P 500, the technology sector is more expensive today than it was during the dot-com bubble in 2000.
Of course, we can make all sorts of arguments to explain how today is not like 2000.
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We can argue the stock prices are justified. We can say that it’s different this time.
But, we have to acknowledge that buying technology stocks today means we’re buying them at historically extreme levels relative to the rest of the stock market.
In other words, we’d be chasing performance.
Chasing performance is like chasing a train that has already left the station. We’re not going to catch it.
And, it’s likely to leave us exhausted and sweaty.
Best regards and good trading,
Are you guilty of chasing a rallying stock higher? If so, how’d things turn out?
Let us know your thoughts – and any questions you have – at [email protected].