Monthly Brief June 2018 – S&P 500 Index and the Information Technology Sector

Monthly Brief June 2018 – S&P 500 Index and the Information Technology Sector


Throughout June, the tone of market discussions continued to move from 2017’s optimism to one of apprehension on the back of global trade concerns. Globally, June provided modestly positive returns for US and UK equity investors, while broader European and Asian markets generally saw declines. While the actual impact of current trade-related actions has had minimal economic effects to date, the outstanding pledges of additional tariff increases have left investors concerned about where the breaking point may lie.

Reflecting this growing uncertainty was the pullback in the yield of the ten-year US Treasury Note. Beginning in late 2017 rates moved generally higher, topping out at 3.11% in mid-May, but have now retreated back below 2.90%. Interest rates typically react to expectations around economic strength and inflation and this modest pullback may very well reflect rising concerns that global trade disruptions are likely to slow global growth.

While this environment is certainly not ideal, it’s important to differentiate between the near-term effects (risks) to the global economy versus the impact on capital markets. To date, concerns primarily focus on slowing rates of economic growth due to trade disruption, but still growing and not yet to the point of contraction (i.e. not recessionary). However, within the capital markets, slowing growth calls into question future values, even if earnings continue to show positive growth, and can result in declining asset prices. It is this dynamic that has caused recent challenges in the global markets.

The current makeup of the S&P 500 Index’s Information Technology sector includes many high-profile companies. Not only are these household names, they also represent significant contributors to today’s global economy. As of June 30, the sector represented over 25% of the index and four companies, Apple, Microsoft, Facebook and Alphabet (Google), accounted for nearly half of this. So it stands to reason that this sector’s health will have a large say in how the broader market performs.

While the sector has been the strongest contributor within the index year to date, June saw it lag the broader market. Given the sector’s prominence, could this be a sign of trouble? The accompanying chart looks at the trend of the sector relative to the broader index and plots the ratio of the two. Accordingly, a rising trend represents a period of leadership for the sector. Since late 2016, the sector has demonstrated this leadership, but not without a measure of volatility.

In this context, the prevailing trend looks to continue to be in place and the recent underperformance is not out of line with previously experienced volatility. This suggests that June’s experience is not out of the ordinary and not necessarily indicative of a breakdown in the sector’s leadership. But this is certainly an item to watch, as extended underperformance by the sector could be a sign of more difficult times for the equity markets in general.

James Ferrin, CFA
Chief Investment Officer


Quantitative Advantage, LLC (QA) is an investment advisor registered with the Securities and Exchange Commission and is a limited liability company organized in the state of Minnesota. Registration of an investment advisor does not imply any specific level of skill or training. QA Wealth Management is a division of QA.

This information has been prepared by QA, is provided for informational purposes only and does not constitute investment advice. It contains general information, is not suitable for everyone and is subject to change without notice. The views and opinions expressed in this report are solely those of QA and are current as of the date of writing. While the content is provided in good faith to provide a general commentary of current market factors and conditions, the views and opinions expressed are limited in scope and QA makes no representation or warranty as to the accuracy or completeness of the information provided. Past performance of the global investment markets is not a guarantee of future results.

The index performance results referenced in this report represent past performance and are not a guarantee of future performance. Investment returns and principal value will fluctuate and are subject to market volatility, so that a client’s investment, when sold, may be worth more or less than the original cost. Indices are unmanaged and investors cannot invest directly in an index. An index’s performance does not reflect the deduction of transaction costs, management fees, or other costs which would reduce returns.

The S&P 500 Index is a stock market index based on the market capitalizations of 500 large companies having common stock listed on the New York Stock Exchange or the NASDAQ Stock Market.

The S&P 500 Information Technology Index comprises those companies included in the S&P 500 Index that are classified as members of the GICS information technology sector.

For additional information regarding these indices, please refer to the sponsor website at

For more information about QA, its investment advisory and management services, fees, and the risks associated with the investments which QA’s investment strategies and model portfolios may make, please review QA’s Form ADV disclosure brochure, which is available at, or upon request from QA’s compliance department by telephone at 866-767-8007, by writing to 10400 Yellow Circle Drive, Suite 303, Minnetonka, MN 55343, or by email to Please review the Form ADV disclosure brochure carefully before or at the time you enter into an agreement with QA.