September 11, 2020
The U.S. equity markets are modestly firmer this morning following another broad-based rout yesterday. The Dow fell 405.89 points, or -1.45%. The S&P 500 and NASDAQ also declined, 59.77 and 221.97 points, or -1.99% and -1.76%, respectively.
Sharp declines in technology stocks have led the markets this week. Some analysts think the recent decline is the start of a protracted pullback, while others see a healthy correction after prices shot too high in recent months. “Price gains for some of the bellwether tech stocks: They are astronomical,” said Binay Chandgothia, a portfolio manager at Principal Global Investors.
The argument supporting a continued rally in tech stocks is that these stocks will continue to benefit from the shift to working and learning at home, as well as low bond yields that mean future profits are worth more in today’s dollars. “Fundamentally, these companies are in pole position,” Chandgothia said. The other side of that argument is that monetary stimulus provided the liquidity to the market that rushed right into the tech sector. Now that additional stimulus is deeply in question, the investors are re-thinking technology at these prices.
Economic recovery is going to be key for the U.S. equity markets to continue to climb. But the recovery right now is “fragile, and barring additional stimulus, the recovery will be more susceptible to downside risks, said Gregory Daco, chief U.S. economist at Oxford Economics.
We will never forget.