Should Tech Stocks Be Thrown Overboard?

It's a new year and we've already seen a shift in market leaders. Does that mean we should wholesale turn over existing portfolios? We think the answer to that question is -

yes and no. Markets naturally shift exposure when themes age or change. The inspiration for this week's musings is the 1987 movie, "Overboard." Here’s some trivia about the film:

• This movie was filmed on a fairly meager budget of only $22 million, as there were little-to-no special effects and not any real exotic locations. The film did poorly at the box office ($26.7 million) despite it's release during the Christmas season of '87. However, the film was popular in Canada, with top ten video rental sales in 1988.

• John Candy was considered for the role of Billy, but he was busy filming "Planes, Trains, and Automobiles" that year.

• The old Dodge pickup truck used by Kurt Russell's character in the movie was later used in "Christmas Vacation" as the driver who tailgated Clark in the opening scenes.

• The luxury yacht referred to in the film as the "S.S. Immaculata" is also portrayed as the "Attessa" in the film "Indecent Proposal."

• The film's director, Gary Marshall, makes a cameo as the drummer for the band in the bowling alley scene.

Here's what we've seen so far this week...

Use the Information Given. A great scene in this comedy is when Joanna, played by Goldie Hawn, has the first meaningful conversation with her butler after she regains

her memory. He reminds her that she has been given a gift and what she chooses to do with that gift is up to her. Markets appear to have done the same in the first few short days of 2026. The first 5 trading days of 2026 were positive. That's significant because historically that's a good sign for the remainder of the year. When the first 5 trading days of January are positive, the market is higher 12 months later 84% of the time, with an average return of 14.2%. For further perspective, earlier this week we wrote about Mid-term election year, like 2026, and the volatility that comes with it. It's a mixed bag when the first 5 days of January are positive in a Mid-term election year. The average return in that scenario is +7.3%, with a positivity rate of only 55%.

However, we received yet another sign that the year may turn out positive when the Dow Theory triggered earlier this week. Dow Theory posits that when the Dow

Transports Index makes an all-time high along with the Dow Jones Industrial Average and it's been more than a year since the Transports made a new ATH, markets tend to be higher one year later. In this scenario, going back to 1927, the S&P 500 was higher one year later by an average of +12.4%, with a 94% positivity rate. And yet, just like we mentioned with increased volatility in Mid-term election years, the 1-year max drawdown when the Dow Theory triggers is +6.15%, on average. So, while markets may look to finish positive by year-end, it's still likely we will get a pull back of some kind in 2026.

Sometimes, It's Just Not That Complicated. The psychiatrist in "Overboard" asks Joanna why she would serve the group when there are servants on the boat. She

responds, "I thought you might be hungry." The doctor states, "That's excellent!" Joanna's husband asks, "What's excellent about it?" To which the doctor responds, "I was hungry." When trends remain in tact, we should rely on that information. While the labor market has waivered some, the trend remains stable. As we've stated in previous posts, we seem to be in a "low hire, low fire" environment. The jobs report released this morning showed that the Unemployment Rate dipped to 4.4% last month, which is below the historical average of 5.7%. Jobless Claims came in this week at 208,000, well below the historical average of 360,910 and are hovering around the 2021 low mark. Job Cuts for December were at the lowest levels since January of 2025. As long as jobs are growing, albeit slowly, and firings are not picking up, the labor market can remain stable.

Meanwhile, the Atlanta Fed released an updated forecast for 4th quarter GDP this week.

After the initial reading in late December opened at +3.0%, this week's number jumped higher to +5.1%. If that number proves to be true, that would put year-over-year GDP growth well above the historical trend for annual growth. The two main drivers of the Atlanta Fed's forecast increase are an substantial increase in consumer spending and jump from negative to positive Net Exports. A strong consumer will continue to push GDP higher, which is likely to push corporate earnings higher, thus leading to positive stock market returns.

Changing of the Guard?  The story of "Overboard" centers around a woman leaving one bad situation for a better situation and the family without a wife/mother benefitting

from the drastic change. Equities appear to be experiencing something similar to start the new year. Yesterday, all equity sectors were in the green for the day, with the exception of Technology. That doesn't happen very often, but may signal a changing of the guard. For the past two-and-a-half years, Technology has been the leading sector. However, elevated valuations and concentrations in just a few names may cause profit-taking in some key technology stocks in favor or a rotation to other sectors.

As we highlighted a earlier this week, other areas of the market have been far out-

pacing the performance of the Mag 7 stocks since the end of October. Profit-taking in November and December has caused Mag 7 to lag mid-caps, small caps, international, and even the equally-weighted S&P 500 Index that is not highly concentrated in Mag 7. If this rotation continues, it would be a healthy sign that markets are poised to move higher with the "other" 493 names in the S&P 500 Index out-shining the top 7 names. That's not to say technology stocks will fall off a cliff, but favoring other sectors of the market might not be a bad strategy in 2026.

Here's the scene where Joanna learns she's been given a gift...

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Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

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