Industries change. Companies change. Valuations change. It should come as no surprise, then, that sector behavior in the stock market can change as well.

Let's take a look back at the ten S&P 500 sectors since data became available in October 1989.

Defensive vs. Cyclical

We generally break down the sectors into two main categories based on annualized volatility (see chart below):

Changing Technology

However, this chart doesn't tell the whole story. Technology has been the most volatile sector on average since 1989 but that volatility has been far from constant. Is Tech the same sector today as it was back in 2000?

As it turns out, it not even close to the same. The top five weightings in the Technology sector today (comprising 40% of the index) are apple (AAPL), Microsoft (MSFT), Intel (INTC), Google (GOOG), and IBM. All of these are well-established companies with real earnings and valuations more closely in line with the broad market, a much different picture than what persisted in the late 1990s and 2000.

According to Patrick O'Shaughnessy of O'Shaughnessy Asset Management, the percentage of “cheap” companies that are in the Tech sector is higher today than almost any other period in history (see yellow in chart below)

Source: Millennial Invest

As a result of this and the increasing perception of safety given its high cash levels, Tech now has the lowest volatility of any of the cyclical sectors. In the chart below, you'll notice technology volatility (green line) started deviating from the rest of the cyclical sectors in the late 1990s as the “dot-com bubble” took hold.

As the bubble burst, volatility slowly moved back in line with the other cyclical sectors and in recent years it has taken a more defensive tone. In fact, over the past 24 months it actually has the lowest volatility of any sector, even lower than the three defensive sectors.