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Tech sector on the rise as investors eye seasonal volatility

October is starting off well for the stock market as the communications (XLC) and tech stocks (XLK) are leading sector gains. Investors are watching seasonal trends closely with volatility (^VIX) historically known to begin falling this time of year. Yahoo Finance reporter Jared Blikre joins the Live show to break down the numbers ahead of Tuesday's closing bell.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video transcript

- After consecutive monthly decline, stocks are starting off October on an up note. Jared Blikre is on the floor-- the New York Stock Exchange right behind us with a closer look at what we are seeing thus far. Hey. Jared.

JARED BLIKRE: Hey, Julie. Let's look at the Wi-Fi Interactive. We are only seven trading days into October, but guess who's in the forefront? XLC-- that is communication services, one of those megacap sectors that we know very well.

And number two is tech. And if you'll recall, those were the most represented sectors in the lead up in the first seven months of this year through July lots of stories about mega-caps being kind of crowding out the other environments or that the indices are overweighted. Nevertheless, that relationship has reasserted.

However, I'd also note that health care is also an outperformer. That is up 1.8%. Now, when we take a look at the decliners here, it's all defensive-- utilities, energy, and staples. And yes, energy historically more of a defensive sector that can be argued but staples, definitely defensive-- utilities, definitely defensive.

And this is kind of what you would expect with higher interest rates, but not-- and I'm talking about utilities here, but not necessarily those long duration growth stocks. So we'll have to see what comes of yields. But with the big drop off today and yields down about, what, 11 basis points, that does provide a little bit of a tailwind for stocks.

Now, let me show you something else, which is about to provide a tailwind and that is seasonality. This is the VIX in cyan versus what it usually does, and this goes all the way back to 1990. So it's a blended average. And then the purple line is what has happened this year.

You'll notice that we are right up against-- and I've shown this for several weeks-- right up against a potential peak that we usually see on October 12. We did get a rise and maybe a little bit of an early peak there-- hard to say. I would point out that Thursday, October 12-- that due date is CPI date. So we could still see some volatility there.

But if stocks and the VIX were to perform as they do historically, we would expect to see the VIX fall and stocks rise into the end of the year. Lots of people noting that seasonality has worked very well this year. I have some alternate calculations of how to calculate seasonality. I am expecting personally that rally into the end of the year but October could see a little [? diceyness ?] first.

Let me just take a look. Let me just plot some of the sectors here on a longer term basis. This is tech-- XLK. What I'm tracking here is a giant cup and flag. We're familiar with the cup and handle. This is a cup and flag-- very bullish formation. But it's long term. Probably, it would take a couple of weeks to see any kind of definitive break to the upside here.

But nevertheless, lots of sectors are looking like this-- so are the semiconductors. And so a break north of here could potentially, potentially, see a huge run into the end of the year if seasonality plays out. Always caveat that if is a very strong word here.

- Jared Blikre, thank you.