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Financials (XLF) and Communication Services (XLC) led Friday’s sector action as Information Technology (XLK) worked its way into the green by afternoon trading. All three major indexes edged higher following a rally in equities one day prior.
The major indexes are currently on track for their best week of the year. That’s a hard pivot compared to two weeks ago, when a disappointing jobs report spurred an anxiety-inducing sell-off across the entire market.
Notably, technology has led the comeback in stocks. Although it was not the best-performing sector on Friday, if you take a look at the sector action over the past nine trading days, it’s clear tech has been a leader as investors "buy the dip" amid its recent sell-off.
"From a technical perspective, tech has moved to a modestly oversold condition," Truist co-chief investment officer and chief market strategist Keith Lerner wrote in a note to clients on August 8. "To be fair, at previous bottoms, the sector moved to an even deeper oversold condition. This could certainly happen again, meaning the correction may have not fully run its course."
"Still, our view is the risk/reward has improved for the tech sector and the secular story remains intact," Lerner added. "Moreover, in a cooling economic environment, we expect investors to come back to tech given some of the secular tailwinds stemming from artificial intelligence (AI) and its premium growth prospects. Moreover, during the current earnings season, we have seen capital spending trends toward AI continue to rise."
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