Benzinga
Nasdaq-100 falls into correction territory as losses increase for Tesla, Zoom, Peloton
Wall Street apparently decided to stay ahead of the Fed by staging a “reduction tantrum” before any real reduction. There is no sign that the Fed is reversing its accommodative monetary policy in any way, but investors seem convinced that the day will come. Sentiment grew stronger on Thursday, when Fed Chairman Jerome Powell said the magic word “inflation” in public comments, noting that the reopening could create “upward pressure on prices”. Basically, Powell took everyone by surprise, kind of staggering in the dovish tone he had last week. He sounded as if he could see central banks starting to reduce monetary stimulus a little earlier than expected. Wall Street responded with more sales, discarding bonds and stocks amid concerns about economic overheating. Treasury yields reached 1.55%, not far below last year’s one-year peak and close to 15 basis points above this week’s lows. We noticed this morning that the stock market has been shaken when yields reach 1.45%, and that happened very quickly today. Remember, however, that 1.5% or more is very low, historically. Fear seems to be growing that the Fed may be “behind the curve,” as the saying goes, basically meaning that it may be waiting a long time to tighten policy as the economy emerges from the pandemic. Powell, of course, needs to focus on job recovery, and this isn’t really happening. Which means the Fed is in no hurry to reverse anything. There were also some rumors about the proposed $ 1.9 trillion stimulus, which the Senate started voting on Thursday. This is not a political column, but some economists say the level of spending on the bill would have made more sense a few months ago, but it may be more than the economy needs now, according to the Washington Post. This can also affect market concerns about possible overheating, although not all economists necessarily agree with this view. The S&P 500 (SPX) index, which ended with a drop of around 1.3% in 3768, well out of its session low, is now almost 4% below Monday’s close. It has not registered a new high since February 16, when it reached 3,950, a point that is now almost 5% below. Typically, a 10% drop is considered a correction. The Nasdaq (COMP) worsened, falling more than 2%. Little Russell 2000 (RUT) was at the rear with a 2.7% decline. It didn’t seem that any of the indexes had gained much momentum at the close, so we will have to keep an eye on the futures market overnight for clues about tomorrow. Employment data early tomorrow is likely to tell the story. Technical verification continues, but Apple and Microsoft outperform From an industry perspective, technology continues to lead, but on the wrong side of the ledger. It fell more than 2.2% on Thursday. People are making profits at some of the companies that have been big beneficiaries of the Fed’s easy money policy. Tech’s semiconductor segment, which for a while overtook Tech in general on the ideas that an economic recovery would increase demand for chips , was further impaired on Thursday, with a fall of more than 4%. It was interesting to see two of Tech’s biggest lampposts, Apple Inc (NASDAQ: AAPL) and Microsoft Corporation (NASDAQ: MSFT), slightly outperforming the broader sector. If there is a revival of technology, these two so-called “mega-caps” are likely to need to participate. AAPL’s shares are now 17% below their all-time high at the end of January. In addition, some of the leading names in communication services such as Alphabet Inc (NASDAQ: GOOGL), Facebook, Inc. (NASDAQ: FB), ViacomCBS Corporation (NASDAQ: VIAC) and AT&T Inc. (NYSE: T) have had at least days OK . It may be because at times like this, people tend to use more names that they know and that they got along with. The Nasdaq-100 (NDX) is now in correction mode, 10% below the highs. Stocks like Tesla Inc (NASDAQ: TSLA), Zoom Video Communications Inc (NASDAQ: ZM) and Peloton Interactive Inc (NASDAQ: PTON) are taking it on the chin, all 20% below their peaks. The financial sector also collapsed on Thursday, after topping things up earlier this week, while the industrial and materials sector – two sectors that normally do well in times of economic recovery – has been hit. Boeing Co (NYSE: BA) and Archer-Daniels-Midland Co (NYSE: ADM) lost ground. It was interesting to see the financial sector fall, despite rising yields, but they came back a little bit later in the day, and that may just reflect a general regroupment in progress. Perhaps when we look back, we will see this day in the context of people turning more towards “value” stocks and moving away from the names of growth, but this is a seesaw that has been going back and forth a lot in recent months. If you are wondering about technical support for SPX, it is changing rapidly. Going into Thursday, it was close to the 50-day moving average of 3817, but that broke minutes in the session. Now you have to look at 3725, near the beginning of February downtown. SPX recovered from that at the end of Thursday’s session (see chart below), but watch below if it goes down more tomorrow. The 100-day moving average of 3,683 would be in sight. SPX last traded below its 100-day MA in late October, and rebounded twice last fall. The Cboe Volatility Index (VIX) was above 30 at one point during the day before dropping to 28. It is still above the 20-25 range it was in for several weeks before this market hiccup. TABLE OF THE DAY: AH, THESE 50 DAYS. The S&P 500 (SPX – candle) index has flirted with the 50-day moving average (blue line) several times in the past few days, including a close yesterday at the level. The low of the 3723 session was essentially the same place where the 50 days stood out just over a month ago. The SPX stabilized below the 50th on January 29th, but on February 1st it managed to stabilize above it, and then took off upwards (see the purple line). Data source: S&P Dow Jones Indices. Graph source: the thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results. Is the good news good or bad today? The pandemic was a blow to the stomach for the economy in 2020 – no arguments here – and we are still feeling the effects. But when you consider the collective action by the Fed and the tax authorities – in addition to the general agreement that better days are ahead – the market has been able to ignore the bad news. And, arguably, he was able to accept the “bad news is good” argument, in which a weak sequence of numbers helped to provide the impetus for a faster and stronger stimulus. Meanwhile, the march towards a vaccinated population continues. Against this background, it is easy to see why – sometimes – good and bad news were able to push the market to new heights. Now, many seem to be wondering if we are at an inflection point – one that returns markets to their normalized response mode, which means that bad news is bad for markets and vice versa. At least that is the general sentiment after seeing the market’s reaction to the booms of inflation. Tomorrow morning we will have a new view of the employment situation in the United States. Regardless of the number reported, it is possible for markets to interpret this as being in the right direction, but not with the necessary speed. Tomorrow’s payroll number is expected to show an increase of 200,000 jobs, according to the consensus compiled by Briefing.com. Under normal circumstances, this may be an unusual number, but we are still trying to catch up after the pandemic. It would still be an improvement of just 49,000 in January and a negative result in December. These numbers are simply not where you expected them to be if the economy was really coming back. Rate hikes are still seen as unlikely If you are concerned about the Fed’s rate hikes, don’t expect it anytime soon, even though job numbers have improved dramatically and incomes continue to rise. Although many inflation indicators are blinking – especially commodities like oil and copper – the picture of weak jobs means that it is unlikely that we will see anything from the Fed. “Rising rates reflect optimism about an improving economy,” wrote Sam Stovall , from research firm CFRA, in a note earlier this week. “(The rates) will need to rise long before they cause concern, forcing the Fed to raise short-term rates earlier than anticipated.” The chance of up to a single increase of 25 basis points by the end of the year is 4.1%, according to the CME Group’s Fed fund futures. That said, there are some options for the Fed if it wants to reduce the slope yield curve (measured by subtracting the 2-year yield from the 10-year yield). In 2011, the Fed underwent a “turnaround” in which it began selling its short-term papers and buying long-term Treasury bills to manage the so-called “long end” of the curve. In this scenario, longer-term interest rates would likely fall, taking some pressure off sectors of the economy most vulnerable to the pressure of rising long-term rates. Think about housing and automobiles. The last thing the Fed is likely to want to do is to let yields get out of hand and start cutting the recovery. TD Ameritrade® reviews for educational purposes only. SIPC member. Photo by Tech Daily at Unsplash See more from BenzingaClick here for options trading at BenzingaMore Pressure in the tech sector to start the day, with Apple, Microsoft Both LowerDirection hard to find as the market continues to cut ahead of key job data © 2021 Benzinga.com. 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