Mega tech’s market-leading days are numbered thanks to Fed Chairman Jerome Powell.
The NAS 100 sank as much as 2.8% Thursday, pushed down by a fall in the mega cap tech stocks that have powered this rally.
The decline came after FOMC policy makers pledged to keep interest rates low until inflation averages over 2%, while failing to give any fresh details on the Fed’s bond-buying plans.
The lack of commitment on QE sent a shock wave through tech stocks, which have benefited from rock-bottom rates in addition to the China virus’ stay-at-home trade.
Near-Zero borrowing costs have helped to justify the industry’s lofty valuations, with the NAS 100’s PE/R exceeding 40 before the latest selloff, the highest since Y 2004. That has driven the NAS 100 up by 58% from its 23 March lows, but the prospect of a sharp selloff in long-dated Treasuries is chilling that rally.
Wednesday’s FOMC meeting was not supportive of risk though, as guidance on QE was weak. Investors were expecting a policy package that forcefully anchored the entire yield curve, but got 1 set up to steepen the curve.
The selloff extended the NAS 100’s September losses, with the gauge headed toward its 1st monthly decliner since March.
Yields on the benchmark 10-yr Treasuries were 1 bspt lower, as traders stepped in to buy the dip following Wednesday’s bond rout.
The Fed’s commitment to keep monetary policy loose along with historically low Treasury yields have helped tech Bulls ignore dot-com comparisons
A spike in inflation and longer-dated yields will be poison to tech. The sector is generally considered to be duration-sensitive, given that the rapidly-expanding companies populating it tend to borrow cash to fuel that growth and their high profit projections are expected over long frames
But a sustained move higher in Treasury yields will divert investors’ cash toward more valued-oriented companies.
Thursday, the major US stock market indexes finished at: DJIA -130.40 to 27891.98, NAS Comp -140.19 to 10910.29, S&P -28.48 to 3357.01
Volume: Trade on the NYSE came in at 1.1-B/shares exchanged
HeffX-LTN’s overall technical outlook for the major US stock market indexes is still Bullish with a Very Bullish bias in here.
- NAS Comp +21.6% YTD
- S&P 500 +3.9% YTD
- DJIA -2.2% YTD
- Russell 2000 -7.5% YTD
Looking Ahead: Investors will receive the preliminary University of Michigan Index of Consumer Sentiment for September, the Conference Board’s Leading Economic Index for August, and the Q-2 Current Account Balance Friday.
Have a terrific weekend, Keep the Faith!