Stocks Pull Back As Big-Tech Names Crash

Hi Everyone,

The stock market finished significantly lower following a sudden and violent pullback in the market-leading tech names. The Dow was down 808, or 2.8%, to 28,293, the Nasdaq lost 598, or 5.0%, to 11,458, while the S&P 500 fell by 136, or 3.8%, to 3,445. Decliners outnumbered advancing issues by an almost 4-to-1 ratio on the NYSE, where volume was heavier than it has been of late.

Traders said that despite today’s bloodbath, the underlying bullish trend remains intact even though the spike in volatility could be the start of a new phase of the recovery. As one trader explained, “Stocks finished near their intraday lows following today’s flush-out plunge in the tech sector, with the Volatility Index (VIX) hitting an over two-month high, and more volatile swings might be ahead until the overly bullish sentiment is ‘reset’ on Wall Street.”

The Nasdaq fell by the most since March today, with no obvious reason other than the lofty gains of the past few weeks, and due to the surging market cap of the tech sector, today’s session led to mind-boggling losses for the top companies. Apple’s (AAPL, -7.8%) market value alone dropped by $200 billion, roughly the total market cap of Coca-Cola (KO, -1.4%), but Amazon (AMZN, -4.5%) and Microsoft (MSFT, -6.2%) also lost about $80 billion and $100 billion in market cap respectively. That said, the tech benchmark only gave back a bit more than one week of its recent gains, and it remains far above even its pre-pandemic high.

Despite the staggering losses among mega-cap tech stocks, some of the most growth-sensitive sectors held up well throughout the session. Financials and banking stocks, in particular, showed stability even in the face of the plunging Treasury yields. That gives hope to bulls that once the orderly correction runs its course, which can be quite a volatile ride following such a rally, a broader, more sustainable rally will begin. The COVID-related developments could still change the bullish outlook, but the current correction is likely not a sign of a major reversal.

The dollar had turned highly volatile this week, even before today’s stock mayhem, due to the looming central bank meetings of the next few weeks. Tuesday’s dismal Eurozone Consumer Price Index (CPI) gave the initial boost to the currency by hurting the outlook of its most important peer. The better-than-expected domestic economic numbers and the less troubling COVID trends also helped the dollar, which bounced off hard off its fresh two-year low from Monday, resulting in its strongest three-day run since June.

The week will end with bang, in terms of economic releases, with government jobs report, and all eyes will be on non-farm payrolls. Following last month’s 1.76 million, payrolls are expected to increase by 1.39 million, but in light of Wednesday’s ADP payrolls miss and the persistently high number of jobless claims, there is meaningful downside risk. The unemployment rate is forecast to tick below 10% for the first time since the start of the COVID crisis, while hourly earnings are expected to be flat following last month’s rebound in wages.

“Live as if you were to die tomorrow, learn as if you were to live forever.”

Mahatma Ghandi

As always, have a great evening and stay tuned!!!

Joe

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