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The U.S. stock market, which has experienced elevated volatility due to recent bank fears, saw a reclassification of its sectors after Friday’s close.
The revisions meant “big changes” for financials and technology as some S&P 500 stocks switched sectors, according to a BofA Global Research note from earlier this month. As a result of changes to the Global Industry Classification Standard, or GICS, financials could become “the new crowded sector,” BofA equity and quant strategists said in the March 7 note.
S&P Dow Jones Indices and MSCI announced about a year ago that their GICS revisions would take place after the close of business Eastern time on March 17.
Jefferies estimated in a March 7 research note that the changes would result in the technology sector’s weight in the S&P 500 falling to 24% from 27.18%, while the weight of financials would rise to 14.5% from 11.75%.
Companies that moved to the financial sector from information technology included Visa Inc.
V,
Mastercard Inc.
MA,
and PayPal Holdings Inc.
PYPL,
according to the BofA note.
The technology sector has been outperforming financial stocks by far in 2023.
Shares of the Technology Select Sector SPDR exchange-traded fund
XLK,
were up 15.3% this year through Friday, while the Financial Select Sector SPDR ETF
XLF,
was down 9.4%, according to FactSet data. The performance of the two sectors compares with a 2% gain for the SPDR S&P 500 ETF Trust
SPY,
over the same period of 2023.
Meanwhile, investors are monitoring for stress in the financial sector after recent regional-bank failures in the U.S. sparked contagion fears that prompted government intervention. Investors also have been worried about bank woes in Europe, with UBS Group
UBSG,
agreeing over the weekend to buy troubled Credit Suisse Group
CSGN,
The Federal Reserve will hold a two-day policy meeting this week that concludes Wednesday, with investors watching for whether the Fed will continue raising its benchmark interest rate to battle inflation after the banking tumult led it to take emergency action on March 12 to help banks meet the needs of their depositors.
Read: What’s at stake for stocks, bonds as Federal Reserve weighs bank chaos against inflation fight
The U.S. stock market was trading higher Monday morning, with the S&P 500
SPX,
up 0.7%, the Dow Jones Industrial Average
DJIA,
gaining 1.1% and the tech-heavy Nasdaq Composite
COMP,
rising 0.2% at last check, according to FactSet data.
The S&P 500 financial-sector index
SP500.40,
was up a sharp 1.7% Monday morning, while the information-technology index
SP500.40,
was down 0.3%, FactSet data show.
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