Tech Falls as Broad Selling Offsets Software Gains

On Friday, August 28, poor breadth defined the Information Technology sector as only 24.3% of its member companies advanced, sending the cap-weighted sector down -1.3%. Technology Select Sector SPDR Fund, an exchange-traded fund that trades under the ticker XLK, dropped -1.5% to close at $185.69, even with 53.6% of its graded holdings placed in top quality tiers. The sector retreated after central bank commentary fueled expectations that the Federal Reserve could raise interest rates.

Inside the fund, company earnings and product developments created wide performance splits. Marvell Technology Group Ltd (-10.3%) was the sector's steepest drag, sliding after investors questioned the timeline for revenue from its custom artificial intelligence chips for Google. In contrast, enterprise software provided a cushion. Workday Inc (+5.8%) rallied after raising its operating margin guidance and authorizing a $4 billion share buyback. It was joined by ServiceNow Inc (+4.5%), which advanced as reassurances over enterprise software demand lifted subscription platforms.

Broader macroeconomic developments reinforced the pressure across technology. Keynote remarks at the Jackson Hole Economic Policy Symposium emphasized that inflation remained above target and that progress toward 2% had been modest.

Equal-weighted technology fell -1.7%, trailing the cap-weighted sector decline of -1.3%. Because smaller members struggled more than mega-cap holdings, the largest companies helped soften the sector's total decline. Across the wider market, 5 of the 11 sectors rose, showing how Friday's pullback concentrated in growth and tech. Over the past month, XLK is up +5.7%, preserving its positive medium-term trend.

EasyAlpha grades the stocks in the sector against their industry peers. Currently, 53.6% of XLK sits in companies graded A or B. Historically, companies graded A or B show stronger fundamentals and carry a lower risk of large drawdowns than companies graded D or E.