Published on September 23rd, 2020 📆 | 2236 Views ⚑
0Technology And Energy Shares Lead Broad-Based Selloff
Key Takeaways:
- Tech gets hammered again as regulatory news hurts sector
- Rotation from tech into other sectors appears to be losing steam
The air keeps coming out of the tires.
A market that rode hard all summer on the FAANGs and semiconductors is making a loud hissing noise as those high-flyers lose traction.
All summer, investors heard warnings that if Techâs party settled down, the broader market would take a hit. September reminds us of that as it appears on track to be the first losing month since March and the worst month of September in 18 years.
All the FAANGs played serious defense Wednesday in the second of three sessions this week where Tech spent most of the day dragging everything else down. The Tech weakness was joined by a rout in the Energy sector, where companies staggered amid worries about shutdowns in Europe and other places dragging on demand.
One possible source of pressure on Tech came from the Justice Department planning to submit a proposal to Congress to curb long standing legal protections for internet companies and force them to shoulder more responsibility for managing content on their sites, The Wall Street Journal reported.
The congressional actionâcombined with natural hesitation to keep buying after the run Tech has hadâhelped trigger selling, and the selling fed on itself as Tech stocks continued to race lower throughout the day. Apple
AAPL
AMZN
MSFT
As Tech Falls Out of Favor, No One Comes to Take Its Place
Often in the recent past when Tech was down, investors found other parts of the market to rotate into. It seemed like today there just wasnât much interest in doing that. The Financials had a tough day, turning completely around after a strong open. The Cboe Volatility Index (VIX) flirted with 30 as market fears climbed the ladder. There just werenât a lot of bright spots in the market.
Technically, it feels like the S&P 500 Index (SPX) might be in the process of testing support levels between 3212 and 3259, but it may ultimately challenge its 200-day moving average down around 3100 before getting back on firmer footing, wrote CFRA analyst Sam Stovall in a note today.
Maybe thereâs some comfort in the fact that the SPX did manage to close above the lows for its recent downturn, but it didnât miss those by much. It remains just above an official 10% correction from its recent all-time highs.
At the same time, the Nasdaq
NDAQ
Another thing that would help but doesnât seem very likely is action from Congress on a fiscal stimulus. Some of this weekâs heaviness in the market could be connected to the fact that Washington, D.C., remains âconflict central,â and of course, coronavirus concerns.
Crude Steps Back, but Dollar Steps Up
Meanwhile, crudeâs brief rally back above $40 a barrel last week is fading into memory as U.S. prices fell back toward $39. A spate of supply worries last week didnât seem to last, and the virus-related shutdowns in England and other parts of the world have people concerned about falling gasoline and jet fuel usage.
If investors are pulling money out of Tech and not rolling it into any other sector, where is it going? Not necessarily into bonds, which have been steady all week, or into gold, which has been losing ground.
So could it be the dollar? Maybe. The dollar index rose above 94 on Wednesday and has generally been moving up all week. Sometimes a stronger dollar is a good thing because it reflects confidence in the U.S. economy. Other times, like when things fell out of bed last March and the dollar rose above 100, it wasnât so good because it indicated to some analysts that people felt most comfortable moving investments to cash. This is typically a sign of fear.
Bumps and Bruises Persist
Anyone hoping things might smooth out a little in the coming days might be in for disappointment. Wednesdayâs quick shift from bright sun at the open to dark clouds an hour later was only the latest evidence that this market can shift on a dime. For some of the unsteadiness, feel free to blame the virus, which has made things so unpredictable almost all year.
As long as cases keep growing, thereâs no reason to think this wonât keep being a choppy market. Coronavirus overshadows everything right now. Thereâs no end date for that, and no one knows when weâll get a resolution to that. One medical expert quoted in the media compared virus outbreaks to the forest fires out West. New ones keep cropping up even while old ones get put out, and no one is sure where the next one will start.
If youâre a long-term investor, this whole year has been another reminder of why it might be best not to focus on all the noise and stop worrying so much about day-to-day moves. Doing that can make you more prone to make trades out of fear. Eventually, weâll hopefully be on the other side of this. In the meantime, investors should consider sticking with their plans.
TD AmeritradeÂŽ commentary for educational purposes only. Member SIPC.
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