Stock markets fall, tech sells off
Investors were digesting a sharp slide in stocks that has taken the Nasdaq Composite around 2.3% lower on Tuesday, despite solid earnings from some of the index’s biggest constituents this season.
Market participants gave a wide range of reasons for the move, from profit-taking near a market top to concerns that a stimulus-fueled rebound in U.S. growth will peak in coming months.
The sell-off followed a pre-market move that had left traders perplexed. Edward Moya, senior market analyst at OANDA said that a Bloomberg reportstating that the U.S. asked the G7 to consider agreeing on a mechanism to counter Chinese economic might have contributed to the weakness.
Treasury yields headed lower and the yield curve flattened on Tuesday as investors ditched riskier assets for a safer haven in government debt.
Meanwhile, U.S. Treasury Secretary Janet Yellen, in taped remarks to a virtual event put on by The Atlantic, suggested that interest rates may need to rise to prevent the economy from overheating as more of President Joe Biden’s economic investment programs come on line. The remarks were broadcast late Tuesday morning.
GENNADIY GOLDBERG, INTEREST RATE STRATEGIST, TD SECURITIES, NEW YORK
“I wonder if it’s some kind of reallocation, we are in May, so the typical adage is sell in May and go away. I wonder how much of it is a seasonal shuffling of portfolios. We’ve had a few very strong months of equity rallies so I wonder how much of this is some investors taking profit and perhaps putting their equity longs on hold for now.”
“Today seems to be a little more positioning driven, I think the market’s a little bit jumpy.”
“(Yellen) was actually asked about the growing share of government spending to GDP and she was asked a very economist question and she answered in a very economist way, where interest rates to yields might have to rise a little bit for the reallocation of resources and the market read that as rates will have to rise. But I think they’ve already risen. They’ve gone from 1% to where we are now, so its certainly quite a bit already.”
“She’s talking about interest rates, and the clearing price for U.S. Treasury debt over the long run, I don’t think it was meant to be an impactful statement that yields will have to rise now.”
ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER AT DAKOTA WEALTH IN FAIRFIELD, CONNECTICUT
“It’s concerns about valuations, that the market maybe being overextended, and add to that inflation prospects that were fanned by (Warren) Buffett over this past weekend.
“(Big tech earnings) reports were better than expected. The concern is more than the most recent earnings, it’s what’s going to happen in July and August and September. Is the stimulus by then going to be exhausted? What’s next, what’s going to drive the markets higher? When you look at the valuations it looks expensive.
“We haven’t seen this kind of growth in a long time. The market starts to think when we go out to the end of this year, what are the comps going to look like then?
“Chips are the space everyone loves to hate right now, which is kind of mind-boggling because demand is only increasing. Supply is going to be tight, it’s not overnight that people can build these factories.”
“Companies are saying they can’t make cars, phones and printers because they don’t have the chips, and it seems like that would be an opportunity. If Caterpillar said ‘we can’t make the machinery fast enough because demand is so high,’ people would be scooping up Caterpillar.
“One reason is the ISM manufacturing report. People are wondering if this is the end of the good times. The sheep are following each other.”
BINKY CHADHA, CHIEF GLOBAL STRATEGIST, DEUTSCHE BANK, AT A VIRTUAL ROUNDTABLE:
“Equity market performance is very strongly tied to indicators of cyclical macro growth such as ISM. That correlation is running very strong at 75% or so between measures of equity performance and what ISMs are doing. The second point is that historically, growth or growth rates tend to peak pretty soon after recovery begins. So the ISM tends to peak a year or so after recovery begins and that’s exactly the point where we are now. The manufacturing ISM which just printed looks like an inverted V. Lastly, when growth as measured by the ISM peaks, the market has tended to sell off historically.
“In a third of cases, when growth reached a peak then went sideways at elevated levels we saw a 6% selloff.
“This is the first serious challenge to equities and that’s where we are and that’s what we are looking for.”
ART HOGAN, CHIEF MARKET STRATEGIST AT NATIONAL SECURITIES IN NEW YORK:
“The market’s reaction to extraordinarily good news on the earnings front has been equal and opposite meaning great earnings across the board and companies are getting sold.
“Oftentimes that happens when you enter an earnings season with stocks priced to perfection. We entered earnings season at or near all-time highs and across the board whether it was banks the first week or the tech companies last week and a broad spectrum of other sectors this week stocks are just not being rewarded for outstanding earnings and revenue and raising guidance. We’re just in a short term profit taking mode and that picked up some volatility this morning.”
ANGELO MEDA, PORTFOLIO MANAGER AT BANOR SIM IN MILAN:
“No trigger… it’s a combination of a sell-off on the winners of the past months… with the month of May and a ‘nervous’ positioning.”
EDWARD MOYA, SENIOR MARKET ANALYST, THE AMERICAS, OANDA:
“The habit of making fresh record highs will be a lot harder in the coming months as everyone braces for some of President Biden’s tax plan to get pushed through and for surging soft commodities pricing and chip shortages to drive inflationary concerns.
“The last couple of weeks have been filled with countless companies from Procter & Gamble, Coca-Cola, Caterpillar, and even Berkshire Hathaway, talking about persistent rising pricing pressures.
“Wall Street won’t find out if the Fed is making a policy mistake until several months down the road and that is making some traders nervous. After Friday’s nonfarm payroll report, investors will see a clear path for the U.S. economy to recover the remaining lost jobs due to COVID and noticeably hear more companies talk about raising prices.”
CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, NC
“The fact the market is so expensive and has run so far leaves it open to risk off moves like you see today and any small catalyst can really set off a larger move.”
“If markets are priced for perfection, anything less than perfection could be a problem.”