Tech Sector Holds Flat as Large Caps Offset Narrow Breadth

On Wednesday, September 16, the exchange-traded fund Technology Select Sector SPDR Fund (XLK) closed +0.1% at $183.96. The cap-weighted Information Technology sector finished +0.1%, making it one of the few positive groups on a day when 3 of the 11 sectors rose. However, market breadth was negative: only 43.1% of the sector's stocks closed higher, and an equal-weighted measure of those same companies recorded -0.4%. The largest holdings in the sector held up the fund while the broader group declined, and stocks graded A or B make up 39.7% of the fund's portfolio.

Individual performance across the sector showed sharp divergence. Hardware and networking suppliers led the gainers, with Lumentum Holdings Inc (+9.6%) and Coherent Inc (+6.8%) advancing in an oversold bounce across optical equipment after recent price drops. Server makers also advanced as buying continued in the artificial intelligence server trade despite sponsor share sale filings. In enterprise software, Salesforce saw active trading following updates on its artificial intelligence reasoning models and integrations, while Intel gained following reports of manufacturing talks with SK Hynix.

On the downside, ON Semiconductor Corporation (-9.0%) posted the sector's largest drop after outlining its long-term revenue and margin targets during an investor day presentation, joining broader pressure across semiconductor suppliers following Federal Reserve interest rate projections.

Across the sector, companies graded A or B have stronger fundamentals, and historically they have carried a lower risk of large drawdowns than companies graded D or E. Over longer horizons, XLK stands at +33.3% over the past six months, compared to -3.3% over the past month and -32.5% over the past twelve months.