As the market sell off picks up steam, the technology sector is bearing the brunt. Meanwhile, other sectors are exhibiting significant strength. Investors would do well to remember history and the fact that equity sectors alternate in having their day in the sun. Much as fashion changes year to year, so do the stocks that go in and out of favor. The current narrative that technology is the only future is reminiscent of the late 1990s. Is this time different?
Technology has dominated the markets and the zeitgeist of the economy for much of the past decade leaving industry upon industry turned upside down. The same excitement was prevalent in the 1990s as the promise of the internet created similar dislocations. The trouble develops when euphoria takes over and a hardened belief that technology is the sole sector that warrants investment.
Cisco Systems was the darling of the 1990s, the company that was largely responsible for building the plumbing (routers, switches etc.) of the internet. The stock soared from pennies a share split adjusted to nearly $80 in 2000. Following the dot com bust, Cisco stock lost nearly 90% of its’s market value in barely two years. It took 14 years for the stock to merely get back to half of its’ all time high seen in 2000.
Cisco Systems (CSCO) – Quarterly Since IPO
Nobody can predict the future. Whether the technology sector has finally topped or more broadly the overall equity market has topped will only be evident in hindsight. However, keeping an eye on the current leadership of the market and focusing one’s investments in these companies and industries allows the potential for outperformance over time. While technology has lagged in recent months, consumer discretionary companies have soared. The opportunity cost of holding past winners cannot be overstated. It’s never different this time or as is attributed to Mark Twain “History doesn’t repeat, but it does rhyme.”