Daily Management Review

This Might Be Just The Start For The Big Tech Rout In The Market


This Might Be Just The Start For The Big Tech Rout In The Market
Was the dip in tech stocks the start of a significant reversal for the high-flying group or was the Friday drop a one-day aberration is the big question remains after that incidentgn at the stick market.
Closing the day with a loss of 2.4 percent, the Nasdaq 100 fell powerfully on Friday after hitting a record high in early trade — its 10th in the past 12 sessions. Faring even worse, closing down 3.9 percent was the S&P 500 and Apple was the biggest component in both that index and the Nasdaq 100.
In Monday's session, the sector is not exactly bouncing back. Making it the S&P 500's worst-performing sector by far, the information technology sector is down 1.3 percent, with two hours left in trade.
The two-day move appears to be driven by concerns that the biggest tech names may have gotten overvalued.
Five stocks — Facebook, Amazon, Apple, Microsoft and Alphabet — have been "key drivers" of both the S&P 500 and the Nasdaq 100, showed a widely read piece of research from Goldman Sachs in Friday morning.
Thanks to these stocks, the "momentum" investing factor "has built a valuation air pocket underneath it creating cause for pause", Goldman noted and argued that this outperformance "has created positioning extremes, factor crowding and difficult-to-decipher risk narratives.”
Tech stocks were actually more profitable back in the tech bubble, though on the other hand they were trading at much higher valuations, pointed out the team led by Robert Boroujerdi who also wrote that the tech run "has evoked memories (nightmares?) for some investors of the last euphoric Nasdaq run including yours truly."
And also hurting were a few stock-specific stories.
. Andrew Left of Citron Research put out a Friday report that he summed up in the following tweet: "$NVDA become a casino stock. Will trade back to $130 before $180 If you think no comp READ Google whitepaper": was the summing up tweet from Andrew Left of Citron Research who put out a Friday report.
The fact that the stock nonetheless fell as a result essentially proves his point about the speculatory nature of Nvidia shares, even though this might not be the most carefully honed piece of investment research as the syntax suggests.
Meanwhile, seriously hurting the tech giant was a Bloomberg report about the lagging data speed of Apple's upcoming products.
Some see as the start of a potential sea change the confluence of factors that led to the move.
"This really looks like a rotation out of the momentum stocks and into more of your value stocks, and we've been waiting for that for a while," Erin Gibbs of S&P Capital said.
"To me, this is a regime change, and people are finally looking to move away from a momentum play," Gibbs added. "I think we could see this trend continue over the next few months."
"It's the beginning of a lot more volatility in the sector", forecasts Stacey Gilbert, head of derivative strategy at Susquehanna.
"I think investors are re-evaluating valuations right here," Gilbert said on "Power Lunch." "There's just a sanity check, as more and more people are talking about how expensive these stocks are and how much they have gotten ahead of themselves."
In the options market, "some people think we may be starting this trend where tech is now going to become less of a darling."