As we approach the end of 2024, the tech sector has been a standout performer, with the Technology Select Sector SPDR® Fund (XLK) showing an impressive year-to-date gain of 21.3%. This raises the question of whether investors should continue to chase gains in the tech sector as we head towards the end of the year.
## December’s Seasonal Tailwind
– December has historically been a favorable month for equities.
– The S&P 500 has averaged a 1.3% gain in December since 1928, making it the third-best month of the year for stocks.
– This seasonal strength could provide the tailwind tech needs to finish 2024 on a high note.
XLK has slightly lagged behind the broader S&P 500 in recent months. If the tech sector outperforms in December, it would mark its third year of outperformance out of the last four years. However, the performance of XLK and the potential for further gains depend on the top three holdings: NVIDIA, Apple, and Microsoft, which collectively account for nearly 41% of the ETF’s weighting.
## NVIDIA: The Sector’s Torchbearer
– NVIDIA, as the largest holding in XLK, holds significant influence over the ETF’s performance.
– The company continues to dominate the AI landscape and reported stellar Q3 earnings.
– NVDA is consolidating near its all-time high, just below the $150 resistance level.
– A breakout above this level could provide momentum for both NVDA and XLK.
## Apple and Microsoft: The Deciders
– Apple and Microsoft, while underperforming NVDA and XLK this year, play a critical role in the ETF’s direction.
– Apple is close to its 52-week high, suggesting a potential breakout.
– Microsoft, despite relative weakness, could see a trend reversal above $430, benefiting XLK.
## Balancing Risk and Reward
The setup for XLK heading into December looks promising, but chasing gains without clear confirmation carries risks. While NVIDIA seems poised for a breakout, the underperformance of Apple and Microsoft could limit the sector’s upside potential. Investors should wait for signs of strength from these top three holdings before considering a move.
In conclusion, the tech sector’s performance in the coming weeks will be crucial for investors looking to capitalize on potential gains. Monitoring the top holdings of XLK, particularly NVIDIA, Apple, and Microsoft, will provide insight into the sector’s direction and potential for a year-end rally.