If it feels like technology has been extra choppy in recent months, then your gut is correct.

If it feels like technology has been extra choppy in recent months, then your gut is correct. Over the last three months, the S&P 500 has had a 0.81% daily standard deviation of returns, which is relatively normal. Over that same period, the iShares U.S. Tech. ETF (IYW) has seen a standard deviation of returns of 1.87%. Said differently, technology has been 2.3x as volatile as the broader market over the last three months, which is on par with the widest spreads in history. The dot com bubble is the most notable example of elevated tech volatility. However, there were similar instances above 2.0 from the early- to mid-90s, as well as in 2024, offering more favorable comparisons.  

Volatility can be a double-edged sword. Extreme gains, such as the 90% increase in semiconductor stocks (SMH) over the last year, are only possible due to significant movement, but this volatility also leaves names exposed to sharper declines. This is especially true for some of the market’s previous leaders recently. The VanEck Semiconductor ETF (SMH) has been more than four times as volatile as the broader market over the last three months, while the Roundhill Memory ETF (DRAM), holding memory chip manufacturers like Micron (MU), has moved eight times as much as the market.  

Recent movement within those two groups has caused notable technical changes. SMH moved to its third consecutive sell signal after falling more than 15% from its June highs. It also lost its near- and long-term market relative strength against SPXEWI, dropping its fund score down to 3.98. Memory fund DRAM has seen even further downside, dropping 30% after its meteoric ascent and pushing its fund score down to an unacceptable 2.15. While semis remain acceptable for now, some memory manufacturers are potential avoids given their deterioration. Both groups were previously high relative strength areas, and their recent volatility has caused the momentum factor to whipsaw, as we touched on here. 

Putting Things in Perspective 

One silver lining of recent action is that the magnitude of declines seen from the market are normal, despite some of the underlying volatility taking place beneath the market’s surface. The Technology Select Sector SPDR fund (XLK) is in correction territory, while the iShares U.S. Tech. ETF (IYW) is 8% off its highs, but that’s still relatively common to see.  

Looking at the drawdowns—defined as the maximum peak-to-trough declines—of IYW since 1992, we can find just how often the tech sector experienced declines of different magnitudes. For example, a shallow drawdown of 5% occurs about once every 35 days, whereas a 20% drawdown happens once every 17 months. IYW is 2% from falling into correction territory with a 10% drawdown, but even if it did so, it would be a common occurrence. Tech drawdowns of 10% or more happen once every 4.4 months, and there’s an 81% chance we see one in any given year, highlighting the normality of current positioning. 

It is important to note that these numbers represent the greatest decline within a given period, not the overall return, meaning a period can see large drawdowns and still recover (e.g. April 2025). Additionally, it doesn’t consider how far away from highs the market was when a drawdown begins, as a 5% decline from ATHs is treated the same as a 5% decline after the start of a bear market.  

Another way to evaluate market declines is by examining what happens after an index initially fell to a certain distance from ATHs. The Technology Sector (IYW) initially reached 5% from highs on June 5th. Pullbacks of 5% to 10% are routine for tech, with 54 occurrences going back to 1992. Historically, half of these shallow declines went on to fall another 5% before recovering, with a third eventually reaching bear-market territory, though the median trip back to highs took just 1.4 months.  

Encouragingly, the sector performs well following those initial declines as well. IYW averages a 21.6%  one-year return after initially falling 5%, which is comfortably above the 18.1% baseline and serves as a sign that buying modest tech dips has historically been a better-than-average trade. Furthermore, even after falling +10% or +15%, the forward one-year returns of 29.3% and 35.5% continue to outpace the baseline. It isn’t until the sector falls more than 35% from highs that one-year returns turn negative and the overall picture deteriorates. Often, declines within technology tend to be healthy exhales.  

The recent pullback in technology is reminiscent of several declines since the start of this bull market. The technology sector (IYW) has gained 221% since the start of 2023, but there were four instances where the group pulled back more than 10%.  

1. October 2023: The 10-year Treasury yield touched 5.02% and Jamie Dimon warned that the Fed could be forced to raise rates to 7%. Then Hamas attacked Israel on October 7, triggering immediate disruption risk. IYW was down 10% from July, then November went on to deliver the Nasdaq's best month in over a year.  
2. August 2024: The “yen carry trade” unwind sent the Nikkei down 12.4% for its worst session since 1987, and right at the low, Elliott Management called Nvidia "bubble land," while Goldman's own head of equity research questioned whether the $1 trillion AI buildout would ever pay off. IYW was up 4.8% over the next week.  
3. April 2025: Tech. was already fragile from January's DeepSeek shock, which triggered a $589 billion single-day wipeout of Nvidia, the largest in history. Then "Liberation Day" hit. Tariffs sent the Nasdaq down 6% for its worst session in five-plus years, and IYW was down as much as 27%. One day later, the April 9 tariff pause delivered the Nasdaq's most explosive day since 2001, with IYW rising 13%. 
4. March 2026: Iran war headlines and Strait of Hormuz fears erased more than $600 billion from tech in a single session, leaving IYW down 17%. It reversed up on March 31 and rallied uninterrupted to new all-time highs by June 2. 

Technology is on the cusp of falling for the fifth time in three years, once again faced with narratives telling us to shift course. Despite previous causes for concern, the tariff tantrum was the only instance in which technology fell to technically unacceptable levels in either DALI or our fund scores. And even then, most representatives were in heavily oversold territory before reversing higher. Each market environment is different, but current technical conditions reinforce a constructive picture for tech as it holds second in DALI while IYW’s fund score currently sits at a healthy 5.65. Overall, a correction for tech is well within historical norms, and it shouldn't meaningfully shift our outlook on the sector unless it sees sustained deterioration. That said, investors should remain especially mindful of potential swings given the high-octane nature of technology this year.