US technology sector in 2017
The technology sector remained the top performer of the S&P 500 Index (SPX-INDEX) in 2017. This sector contributed the most to the US equity market’s bull run. The Technology Select Sector SPDR ETF (XLK), which tracks the performance of the US technology sector, rose 34.6% in 2017.
Major technology stocks such as Alphabet (GOOGL), Apple (AAPL), and Facebook (FB) provided strong returns in 2017. These stocks rose 34%, 50.7%, and 55.3%, respectively, in 2017. The stronger performance of these stocks was mainly driven by solid earnings. The demand for technology (COMP-INDEX) also improved amid growing economic conditions.
The semiconductor industry also contributed considerably to the overall performance of the S&P 500 Index (SPY) in 2017. The SPDR S&P Semiconductor ETF (XSD), which tracks the performance of the semiconductor industry, rose 24.1% in 2017.
Over the last 12 months, the performance of the S&P 500 Index had a strong correlation to the technology sector. Between January 3, 2017, and December 29, 2017, the correlation between the S&P 500 Index and XLK stood at 0.96. The higher positive correlation between these two indicates that the gain in the technology sector added more value to the overall market’s performance.
In a recent note to clients, Goldman Sachs (GS) wrote that tax reform could lead to a 3% fall in the earnings of the technology sector, while it could boost the earnings of the S&P 500 Index by 5% in 2018. However, the firm is still positive on this sector. Investors are curious to see whether this strong rally in the technology sector will continue in the near future.
In the next part of this series, we’ll analyze the performance of the healthcare sector in 2017.