Tech is stock market January champ. Look for a leadership change in February.

Technology-related shares have dominated a January rally that’s seen the S&P 500 index log a half-dozen record finishes. History says the sector is unlikely to repeat its market-leading ways in February, according to analysts at Jefferies.

Through Tuesday’s close, information technology shares were up more than 6%. The communications-services sector, which includes Facebook parent Meta Platforms Inc.
META,
-0.70%
and Google parent Alphabet Inc.
GOOG,
-6.21%

GOOGL,
-6.35%,
had rallied around 8.7%. The S&P 500
SPX
was up 3.2% over the same period.

“Tech is the pound-for-pound champion of January, and it isn’t even close,” they said in a note distributed earlier this month. Pointing to seasonal factors, they argued that a leadership change is likely in February.

The problem is that tech — and all the traditionally defensive sectors, such as utilities, consumer staples and healthcare — tend to underperform in February, they observed, while some of the core cyclicals (materials, energy and industrials) flourish (see chart below).


Jefferies

The tech sector was supporting the S&P 500 and helping to keep the tech-heavy Nasdaq-100
NDX,
tracked by the popular Invesco QQQ Trust Series ETF
QQQ
at highs, but a change in leadership may be in store as earnings reporting season continues, Jefferies had warned. Tech and communications services were settling back on Wednesday as investors digested earnings from Microsoft
MSFT,
-1.47%,
Alphabet and others.

Read: Microsoft earnings beat easily. Here’s why that may be met with a shrug.

“We continue to see [opportunity] for cyclicals this year, and this could be a sign when they will get their first crack,” the analysts wrote.

See: The Dow Jones tends to fall in February. In election years, it’s even worse.

This is an updated version of an article originally published Jan. 22.

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