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BANKS BRIGHTEN, TECH TARNISHED, TO KICK OFF 2025

It's early in 2025, and financials .SPSY, with a more than 6% rise, are the second best performing S&P 500 .SPX sector so far this year (communication services .SPLRCL is out front with a 7% gain).

That said, under the surface, big banks .SPXBK have been especially strong. The SPXBK is up more than 9% YTD.

Meanwhile, tech .SPLRCT is the worst performing S&P 500 sector so far in 2025. It is also the only group with a negative YTD change (-1.6%).

This may have growth .IGX on shaky ground vs value .IVX given that at 2024 year-end, tech's weighting in the SPDR S&P 500 growth ETF SPYG.P (59.4%) dwarfed its weight in the SPDR S&P 500 value ETF SPYV.P (27.6%).

Financials were the fourth heaviest weight in the SPYG at about 6%, whereas this group was the third biggest exposure in the SPYV at about 13%.

Meanwhile, this past Monday, the tech/banks ratio hit 8.57, or its lowest level since mid-March 2023:

Of note, amid Mag 7 mania over the last several years, the tech/banks ratio hit its record high last June at 11.33. The ratio peaked as it was once again flirting with the log-scale resistance line from its early March 2009 high (which occurred around the time of the Financial Crisis market low).

The ratio ended Wednesday at 8.8. However, if the support line from the 2006 low, which is now around 7.5, acts as a magnet, tech would still appear to have more room to underperform banks.

If the support line once again proves resilient, tech can then attempt to resume its longer-term trend of outperforming banks. Conversely, a break of this line may suggest a more protracted and much deeper underperformance phase.

An immediate ratio recovery that reclaims its 200-day moving average, which is now just below 10, can suggest the ratio is back on track for new highs.

(Terence Gabriel)

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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)