As we delve into the recent performance of the tech sector, specifically the Mag 7 (Big Tech) group, it’s clear that there has been some underperformance compared to the broader market. While this may seem like a typical pullback, the question on everyone’s mind is: will this group stabilize and re-anchor the tech sector, providing potential catalysts ahead? In this blog post, we’ll explore the current state of Big Tech, possible reasons for its underperformance, and what could be in store for the future.

Firstly, let’s take a look at the numbers. According to Goldman Sachs, Big Tech has underperformed the broader market by around 7.5 points in recent months, near the upper end of typical non-“event” pullbacks. This is certainly cause for concern, but it’s worth noting that true market shocks have seen drawdowns of 10-12%. So, while Big Tech may be experiencing some turbulence, it’s not yet in crisis mode.

So, what could be driving this underperformance? There are a few factors at play here. Firstly, there has been some softness in the global economy, which has naturally had an impact on tech stocks. Additionally, there have been concerns around the valuations of some tech companies, with investors becoming more cautious and demanding higher growth expectations. Finally, there have been some specific issues affecting certain tech companies, such as supply chain disruptions or regulatory scrutiny.

But despite these challenges, there are reasons to be optimistic about the future of Big Tech. For one, earnings season is fast approaching, with major players like NVDA and AVGO set to report. These results could provide a much-needed boost to the sector, particularly if they deliver strong growth and profitability. Additionally, conference season is upon us, providing a platform for tech companies to showcase their latest innovations and strategies.

Furthermore, there are signs that investor sentiment may be starting to shift in favor of tech stocks. While caution is understandable given the recent underperformance, some analysts are beginning to argue that the sector has become overly pessimistic, with valuations now looking attractive compared to historical norms.