History Suggests Tech Stocks Returns Could Falter. Here’s Why

The technology sector has humbled a lot of us in recent years. Time and time again, we’ve questioned its lofty valuation and wondered how long the stocks can remain on their historic run. And again and again, tech has defied our doubts, reaching new heights.

What will happen to the sector in the next three years, let alone the coming 12 months, I have no idea. But looking further out, I think Big Tech’s returns will disappoint. Why? The top-performing sector of the past decade routinely lags over the subsequent 10 years, and the outlook is especially dour when that sector has gained more than 20% per year like tech has.

The Better It Was, The Worse It Tended to Be

Let’s go to the data: Here is a plot that compares the leading S&P 500 sector’s trailing 10-year return (x-axis) to its forward 10-year return (y-axis). This covers all rolling 10-year periods that started and ended within Dec. 1, 1989, and Nov. 30, 2025.

The plot’s downward slope tells you that the better the leading sector’s returns were in the past, the worse they tended to be in the future. I also derived the average, best, and worst subsequent 10-year annual returns based on the top-performing sector’s returns over the previous decade, as shown below.

There’s a lot to take in, but focus on the two rightmost sets of bars: When the top-performing sector gained 20% or more over a 10-year period, it never made money over the subsequent decade (that is, the “best” subsequent return was negative).

Still Chugging Along

Which brings us back to tech: Not only has it boasted the best 10-year rolling returns of any S&P 500 sector since the decade ended Nov. 30, 2019, but it’s also generated the highest returns in absolute terms of any top-performing sector since the tech-internet mania of the late-1990s/early 2000s.

To be sure, there’s a marked difference between the cash-generative titans that anchor the sector today and the more nascent, profit-challenged firms that investors bid-up 25 years ago. What’s more, tech stocks have shown no signs of flagging since the sector jumped to the top of the leader board in November 2019, earning more than 20% per year in the time since (through Nov. 30, 2025).

But even before tech’s recent supremacy, it wasn’t uncommon for the leading sector to continue chugging along for some time before faltering. For instance, here was the top-performing sector’s best, worst, and average return in the five years that followed the decade in which it posted the best return (this excludes the 10-year periods that tech has led recently).

The top-performing sector gained around 5% per year, on average, in the first five years that followed a decade in which it gained 20 to 25% annually. Moreover, that sector notched a positive return over the next five years in 11 of 13 cases. So, it’s not like the top sector normally rolled over the moment it notched a 20% to 25% return over a 10-year period. It took some time, which makes tech’s continued hot streak seem less anomalous.

Nervous Time

Not that that makes me any less nervous about where we find ourselves now: Six years into a run of tech dominance, during which the sector’s 10-year rolling returns have routinely topped 20% per year. As we saw earlier, there hasn’t been a single instance where the top-performing sector made money in the decade that followed a 10-year period when it gained 20% or more. If that’s any indication, it’s going to be tough sledding ahead for tech.

How tough are we talking? I plugged the rolling 10-year returns of periods tech led into a simple regression (formed using the plot I showed earlier). Below are the 10-year return forecasts it spat out (the line in the chart), juxtaposed with the sector’s rolling past 10-year returns as of each date indicated (the bars).

Obviously, you’ll want to take these forecasts with a grain of salt, as they imply Big Tech stocks will see withering losses in the coming years. For instance, the forecast of a 0.3% annual return for the 10 years ending Nov. 30, 2029, implies tech stocks will plunge more than 70% over the next four years. So, it is best not to take them literally.

But they are a kind of reality check. To put things in perspective, if tech stocks were to lose 10% per year between now and Nov. 30, 2029, they’d still end up earning nearly 10% annually over the full 10-year period that began on Dec. 1, 2019. That gain would match the best subsequent return of any leading sector that had gained 15% to 20% over the preceding decade, like tech did.

Investor Takeaways

This is not deep fundamental analysis. I’m using a heuristic, assuming the longer-term future will resemble the past in certain respects. This time could indeed be different, with tech continuing to power higher, notwithstanding the historical relationship between leading sectors’ past and future returns. If so, everything I’ve asserted above will be wrong.

Nonetheless, when you consider the sheer magnitude of tech’s outperformance in recent years, and the trouble leading sectors have run into in the years that followed their standout returns, it’s concerning. So, then the question becomes: What to do?

There aren’t easy answers. Tech soaks up more than one-third of the US market, so for those committed to maintaining broad low-cost exposure to domestic stocks via an index fund or exchange-traded fund, it’s hard to avoid. At a minimum, it’s advisable to check your US equity allocation. If it exceeds your target weight, trim it back. Otherwise, you’re making an even bigger bet on tech than your plan calls for, at a time when it’s potentially stretched.

You could go even further by deliberately lowering your tech stake by, for instance, opting for an equal-weighted index (which holds half as much in tech) or shifting toward a value index (which stashes just 10% or so in the sector). But make no mistake—those are active bets, with all the associated trade-offs, demanding patience and forethought, including when to take the position off at the appointed time.

Looking beyond the US equity sleeve of your portfolio, you could also lighten up on US stocks altogether, shifting toward foreign stocks (to which investors appeared to have become underweight) or even bonds, which boast higher yields than they used to. But the same caution applies: To the extent that allocation doesn’t align with your plan, you’re placing a wager, which could backfire.

Allocation decisions aside, tech’s massive run would at least seem to call for tempering our expectations. Any of us who have strategically allocated to US stocks per a plan have, in effect, assumed US stocks will deliver a certain return over our time horizon. With tech accounting for such a big chunk of the US market, and the sector arguably looking like a candidate to revert lower in future years, those assumptions might need to be revisited.

Switched On

Here are other things I’m reading, listening to, or watching:

• “Hidden Fees, Hidden Dangers” by my colleague James Locke
• Jason Zweig on what happens when illiquid funds discover price (our team wrote about it too, here)
• Investors dump hundreds of millions into an ETF for a melting ice cube
• Henry Ellenbogen (ex T. Rowe Price New Horizons manager; now heads Durable Capital) on best practices for investing in innovation
• “How Warren Buffett Did It” by Seth Klarman
• “I Work on Super Yachts for the Mega Rich, Ask Me Anything”
• “Nothing Left to Do (Let’s Make This Christmas Blue)” by The Both
• One of the craziest, most ecstatic moments in Chicago sports history

Don’t Be a Stranger

I love hearing from you. Have some feedback? An angle for an article? Email me at jeffrey.ptak@morningstar.com. If you’re so inclined, you can also follow me on Twitter/X at @syouth1, and I do some odds-and-ends writing on a Substack called Basis Pointing.