Hi Everyone,
The key sectors continued to diverge substantially today, along the fault lines of the past week. Volatility was relatively low compared to yesterday’s session, even though the Volatility Index (VIX, -2.3%) held firmly above the key 20 level. Cyclical issues showed weakness in the first hours of trading as this week’s trends briefly reversed, but financials, industrials, and energy stocks finished well above their intraday lows. Real estate stocks enjoyed tailwinds thanks to the blowout pending home sales data, but the defensive utilities, consumer staples, and healthcare sectors were the strongest today, thanks to the continued safe-haven buying.
Traders said that Treasury yields continue to be the center of attention, and the late-session bounce in rates led to another wave of selling on the Street. As one trader explained, “The fate of today’s failed rally attempt in stocks was closely linked to the price action in Treasuries, and as long as investors remain laser-focused on yields, stocks could remain under short-term selling pressure.”
The Nasdaq and the tech sector have been in the epicenter of this week’s selloff, and the index closed in the red for the fourth day in a row. Despite its early gains, the Nasdaq dipped below its previous correction low today, hitting its lowest level in well over a month after dropping by the most in over six months yesterday. The fact that nearly half of the top 100 tech stocks pulled back by more than 20% this month illustrates well the depth of the correction. However, with investor sentiment being excessively bearish toward the Nasdaq, a great buying opportunity might be just around the corner.
Today’s session proved that, from a global perspective, the U.S. economy remains very strong as the dollar continues to push higher against all of its major peers. The widening of the expected interest rate differentials is likely the main reason behind the move. As compared to most developed nations, the U.S. is now poised to raise interest rates much earlier, especially in light of the strong inflationary pressures. The Biden administration’s planned spending packages might lead to even stronger growth, and, in turn, higher interest rates in the next couple of years, so it is no surprise that Treasury yields and the dollar have been pushing higher since the Fed meeting.
“To appreciate the beauty of a snowflake, it is necessary to stand out in the cold.”
Aristotle
As always, have a great evening and stay tuned!!
