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TECH DOWN, BUT NOT OUT, SAYS BMO

Technology .SPLRCT performance has been off to a rough start in 2025 as it is the second worst performing S&P 500 .SPX sector YTD with about an 8% loss (only consumer discretionary .SPLRCD, off just over 9%, is being hit harder).

Given tech's significant outperformance over the past two calendar years, Brian Belkski, chief investment strategist at BMO Capital Markets, thinks recent sector struggles have raised anxiety amongst investors with many questioning if this trend can be reversed throughout the rest of the year.

"Despite this recent underperformance, we remain committed to our overweight stance and would point out that the bulk of the underperformance has come from just a handful of the largest stocks within the sector," writes Belski in a strategy note out late Monday.

Belski adds that looking at the sector from an equal- weighted perspective shows a significantly less dire situation with average YTD performance of all sector stocks roughly flat.

In addition, he says that the percentage of outperforming sector stocks has risen this year vs the same period last year with roughly half outpacing the S&P 500 with near-double-digit gains.

In any event, BMO does believe it will be more challenging to invest within tech given the sector's highly skewed composition within the S&P 500 and all the headline risk the biggest stocks face – but it will not be impossible to deliver outperformance.

Belski says that the combination of low stock correlations and elevated valuations warrants an active approach, which is a departure from the passive-dominated trends that investors have become used to for tech since this bull market began in late 2022, "with growth-at-a reasonable price focused on smaller stocks within the sector as our preferred stock picking strategy."

(Terence Gabriel)

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