Investors’ loss of faith in the all-mighty technology sector is raising fears of the overall market’s ability to grow in 2019.
After all, the surge in technology stocks has been a staple of the bull market over the past decade.
“It has been the leading sector for most of the past nine years,” said Randy Frederick, vice president of trading and derivatives with the Schwab Center for Financial Research.
Without that strength, it will be tough, but not impossible for the market to rise in 2019.
“The mathematical short answer is that it’s going to be very hard for the stock market to rise in 2019 without technology strength given its weighting in the S&P 500 (^GSPC),” said Nick Colas, co-founder of DataTrek Research.
The information technology sector comprises of roughly 20% of the S&P 500’s market cap. The newly created communication services sector, which includes big tech names like Alphabet (GOOGL) and Facebook (FB), comprises of roughly 10% of the S&P 500’s market cap.
If technology is not the leader anymore, Colas said financials and health care would need to step in.
Financials account for roughly 14% of the S&P 500’s market cap, and health care makes up just over 15%.
Colas understands the bull case for health care. “A lot of growth investors have moved money out of tech and into health care,” he said. “It has the benefit of being massively regulated already, so unlike tech, you don’t have to worry about a big change in the regulatory landscape.”
Colas is less bullish on the financials sector, which is dependent on a steepening yield curve and loan growth.
To get loan growth, a recession must first occur, according to Colas, which isn’t an easy concept to swallow.
“Loan growth would likely come after the next recession, not before,” he said, referring to the positive correlation between an economic recovery and loan growth. “You don’t want to own financials heading into a recession, but you would want to own them on the other side of that valley.”
Colas isn’t expecting a recession in 2019. And neither is veteran chartist Marc Chaikin, founder of Chaikin Analytics.
Chaikin doesn’t think tech volatility will disrupt the market’s performance in 2019.
“I believe that the consumer is liquid enough to fuel a bull market,” he told Yahoo Finance. “I believe we are seeing a rolling correction in technology stocks, similar to what we saw in the energy complex in 2014/2015.”
Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.
More from Scott: