Copyright Benzinga
Technology stocks are nearing the kind of explosive rally not seen since the dot-com era, as a potent mix of Fed rate cuts, AI-driven earnings, cooling inflation and trade optimism sends investors piling back into the sector. And the calendar seasonality may keep the party going. The Technology Select Sector SPDR Fund (NYSE:XLK) – the fund widely used to gauge performance in the U.S. tech sector – has soared more than 42% between May 1 and Oct. 27, marking its most substantial six-month rally since September 2020. Since bottoming out in April amid tariff fears, the fund has gained more than 70%. If it climbs just 2.5% more this week, it will mark the biggest six-month rally since March 2000—weeks before the tech bubble burst. Chart: Tech's Comeback Could Mark Best 6-Month Rally In Over 25 Years US-China Deal, Rate Cuts Fuel Tech Meltup After rising 1.6% Friday on cooler-than-expected inflation, the XLK jumped by another 1.7% Monday, outpacing every other sector. Investors cheered constructive trade talks in Kuala Lumpur between U.S. and Chinese officials as Washington reportedly shelved plans for 100% tariffs on Chinese goods, while Beijing reopened rare-earth export discussions and resumed U.S. soybean purchases. These developments could pave the way for a face-to-face between President Donald Trump and President Xi Jinping ahead of a key Nov. 11 deadline. Traders now fully price in the Federal Reserve to cut interest rates again this week, following last Friday's mild CPI reading of 3.0%. A second 25-basis-point cut is also fully priced in for December, bringing cumulative easing to 75 basis points since September. In a note on Monday, veteran Wall Street strategist Ed Yardeni lifted the odds of a stock market meltup to 30% and lowered the probability of a more moderate bull case. "Stock investors love that the Fed Put is back, especially if it isn't needed," Yardeni said, referencing the belief that the Fed will always ease when markets stumble. But with inflation cooling and GDP tracking near 3.9% in the third quarter, he said rate cuts are more likely to fuel asset bubbles than stimulate the labor market. In Yardeni's view, the current environment echoes the late 1990s—an era marked by strong tech earnings, easy monetary policy and euphoric sentiment that ultimately ended in a crash. November: Historically Tech's Sweet Spot The eye-popping May–October tech rally may find a powerful ally in seasonality to keep the party going. “Ghosts and goblins of Sept-Oct fading away with inflation data as we head into the seasonally most wonderful time of year,” said Bank of America’s technical analyst Paul Ciana in a note Monday. Since its launch in 1999, XLK has gained an average of 2.96% in November, making it the ETF's strongest month, with a 77% winning rate. Tech has posted positive November returns every year since 2012, except for a small dip in 2018. In the last six Novembers, the sector has notched gains above 5% each time. Ciana added that information technology recently broke out to new highs, reinforcing its leadership. "Until a topping pattern forms, Tech's structural leadership can continue," he said. Image: Shutterstock
