Hi Everyone,
The stock market finished broadly lower, following a volatile roller-coaster ride on Wall Street with the Nasdaq’s sharp intraday drop weighing on the market in the latter half of the session. The Dow was up 11, or 0.04%, to 26,086, the Nasdaq lost 227, or 2.1%, to 10,391, while the S&P 500 fell by 30, or 0.9%, to 3,155. Decliners outnumbered advancing issues by a 5-to-4 ratio on the NYSE, where volume remained relatively light.
Traders said that today’s session could have marked a short-term top in the slightly overheated tech sector, judging by the volatile intraday pullback. As one trader explained, “The Nasdaq dropped by almost 5% over the course of a couple of hours today, and since the rally has become increasingly ‘narrow’ lately, an orderly correction might be in the cards.”
The sharp afternoon reversal was triggered by FOMC member Kaplan’s slightly hawkish words and the new restrictions in California, which made investors doubt the “quick economic recovery” narrative. The Volatility Index (VIX) hit a two-week high toward the end of the session, surging above the 30 level, just before the closing bell as risk assets plunged. Since earnings season starts in earnest tomorrow, with the reports from JP Morgan (JPM), Wells Fargo (WFC), and Citigroup, trading activity and volatility could remain elevated this week.
The news regarding the depletion of the small business recovery fund weighed on the Russell 2000 today in early trading, despite the positive vaccine-related news and the rally in the large-cap benchmark. Even though small-cap index caught up to the broader market, the sector will likely need further government help, judging by the persistent relative weakness of the Russell. The Trump Administration is expected to come up with a new plan to support the recovery in August, with up to $1 trillion in stimulus, but the structure of the plan and its effect on small businesses is uncertain.
The short squeeze in Tesla (TSLA) continued today, with the electric car maker’s shares surging higher by more than 15% again, before turning lower in late trading. The company’s market value is now close to $300 billion, which roughly equals the combined value of Toyota, Volkswagen, and Honda, the three largest traditional automakers. Some analysts think that the more than 300% post-crash rally in the stock is proof of the Nasdaq overvaluation, but others suggest that the pandemic is simply helping the transition toward the more innovative products of the leaders of the tech sector. Tesla is now among the top 10 public companies (as ranked by market cap) in the U.S., despite the financial troubles the company faced only one year ago.
As always, have a great evening and stay tuned!!!
Joe
