“If you’ve invested mainly in the S&P 500 or tech stocks for the past few years you did great,” said Tony Molina, senior product specialist with Wealthfront.
And they “show that true diversification isn’t just the S&P 500,” Molina said.
Tech lags, while oil stocks and banks surge
But tech’s underperformance isn’t necessarily a bad thing, experts say.
“The last few weeks for the market have been fascinating,” said Jake Wujastyk, founding member and chief market analyst of TrendSpider. “It’s been a long time since we’ve had such a sell-off in growth stocks but the broader indexes haven’t been affected.”
His conclusion: “It shows that diversification is crucial.”
Consumers are shopping — and retail stocks are soaring
Plus, the recent rise in bond yields aren’t helping tech. Rising rates could make it more expensive for tech companies to borrow money in order to keep growing at such a rapid clip.
“What’s inflation going to do? That question is why we are seeing such tension in the market,” said Peter Cramer, head of insurance portfolio management and trading with SLC Management.
“So much of the bull narrative for tech is based on the assumption that low rates incentivize companies to borrow and fuel more growth. That is the concern with tech stocks,” he added.
“We’re starting to see the economy reopen. Fundamentals are improving and there is this injection of stimulus,” Cramer said.
This year’s market moves are also reminding investors that it’s a good idea to have a portfolio that includes a good mix of both domestic and international stocks as well as fixed income assets.
“Diversification is important outside of just whether to own more value or growth stocks,” Wealthfront’s Molina said. “You still need exposure to emerging markets and other foreign markets as well as municipal bonds.”