XLK Stock Recent News

With April turning out downbeat, Wall Street will be striving hard to make an ascent in May, but the operating environment is not all smooth this time around.

Microsoft (MSFT) has been caught in a spree of heavy technology sector sell-off in recent weeks, erasing most of its gains made this year. There might be gains in store if MSFT comes up with an earnings beat as demand for generative AI will continue to fuel cloud business.

The S&P 500 provides investors with excellent stability and long-term returns. By narrowing in on tech, however, investors can achieve better returns.

XLK is an ETF that tracks the performance of the S&P Technology Select Sector Index, tracking tech stocks within the S&P 500. Valuations, and valuations relative to the S&P 500, are not a good reason to sell or underweight a market sector. XLK outperformed the S&P 500 and all other sectors in the index mainly due to expanding valuations and P/E multiples.

The technology sector gained momentum in the Apr 11 trading session, buoyed by a jump in big tech stocks. The upside came on softer-than-expected producer prices data, which supported the belief that inflation is cooling.

Tech stocks have dominated the market in recent years, with Apple and Microsoft outperforming the index and S&P 500. Many online investment ideas promote tech stocks as the best sector bet, but there are reasons to be cautious. Historical data shows that when sectors become too dominant, they often experience periods of underperformance. The tech sector is approaching these levels now.

Total S&P 500 earnings are expected to be up 2.5% from the same period last year on 3.5% higher revenues with technology sector being the key driver.

Tech-focused Technology Select Sector SPDR® Fund ETF has underperformed the S&P 500 by just under 200 basis points since the end of 2023. The top 10 holdings of the XLK ETF are dominated by Microsoft and Apple, accounting for about a third of the fund. The recent underperformance of XLK may indicate a reset in momentum, setting up for a new rally in the coming months.

Always start out with a no-nonsense foundational position in an index fund. Slow and steady dividend payments can often bear more fruit than picking the next red-hot growth stock.

Amrita Roy is neutral on the S&P 500, citing no material downward revision to earnings and the expectation of higher interest rates due to reaccelerating inflation. She is bullish on India and emerging markets in general, as global capital inflows are shifting towards these regions.