Tech stocks are 'the only game in town' right now as they outperform the S&P 500
- Tech stocks are the one bright spot in the market, DataTrek's Nicholas Colas said.
- Tech names in the S&P 500 have beat the overall index this year, gaining 27% since January.
Big tech stocks are the one bright spot in the market right now – and investors should be overweight in the sector if they want to outperform the broader market, according to DataTrek.
In a note on Tuesday, DataTrek founder Nicholas Colas pointed to the stellar returns tech stocks have posted since the start of the year, with the sector gaining 27% since January. That makes tech the second-best performing sector in the S&P 500, beating the benchmark index, which has risen by 9% since the start of the year.
Without tech, the S&P 500 would only be up 2.5% in 2023, and without larger tech names, the index would in fact be down 1.4%, Colas noted, suggesting that large cap tech stocks were currently the most attractive area of the market.
Those names could also move higher in the coming weeks, as many investors likely missed out on the rally that took off in the first quarter, Colas said. That could lead to an inflow of investment in tech in the second half of this quarter quarter, fueling more upward momentum in the big tech.
"Big Tech is essentially the only game in town at the moment. No other sector can substitute for it in terms of performance, so being at least equal weight these names is necessary in order to at least keep up with the index," he said. "Outperforming in the current environment essentially requires an overweight to one or more of these names."
Tech's overperformance comes after a dismal year for the sector, with titans like Microsoft, Alphabet, Meta, and Amazon plunging in 2022 as interest rates climbed.
But tech names have largely rebounded this year as inflation eases and investors see an end to the Fed's rate hike campaign in sight. Markets have priced in a 74% chance the Fed pauses rate hikes at its June policy meeting and a 40% chance the Fed could cut rates 25 basis-points in November, a move that would likely be bullish for stocks.