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Tech under pressure

Pressure keeps growing on the tech sector, and particularly on the #magnificent7. In the chart below, you can see the difference between the market cap weight and the earnings weight on the S&P500. As tech earnings get diluted in the index, the market cap weight should follow, implying a correction similar to the one on the 3Q of 2018. Although the tech sector is likely to continue with its dominant position in the index, it needs to back it up with earnings, otherwise the breadth of the market will deteriorate even further and the risk of an abrupt correction will increase as well. Additionally, is difficult to see another sector taking the leading position out of tech, and that fact has implications on the index overall, not only for the sector. This earnings season is key as the index continues to print all time highs.

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