September 9, 2020
Another major rout for the U.S. equity markets yesterday led downward by the technology sector. If fact, the tech sector dipped into correction level yesterday losing 465.44 points, or -4.11%. The Dow and S&P 500 also took bug hits, losing 632.52 and 95.12 points, or -2.25% and -2.78%, respectively.
This decline comes as no surprise for two significant reasons. First, the markets have been on a tear since the March 23 low, creating the right side of the “V” shaped recovery. August itself, posted gains of from between 7% and 9% boosting the S&P 500 and the NASDAQ to all-time highs. Profit taking was coming sooner or later. Second, it’s September. The best example of a technology “melt-up” and then “melt-down” is Tesla. In recent months, the stock had gained more than 70% making it one of the most watched stocks in the tech sector. But yesterday some of the shine came off when Tesla dropped 21.1%.
“Tech is expensive because people think it can grow regardless of the economic backdrop,” said James Athey, senior investment manager at Aberdeen Standard Investments. “There are varying degrees of truth to that.”
The ISM Manufacturing Index for August was released yesterday, a measure of manufacturing confidence. The July ISM came in at 54.2 and analysts expected August to be in the range of 54.8. On its release yesterday, the ISM came in at 58 which was the highest level since the end of 2018.
The markets are getting a bounce today after three days of severe losses. Does this mean the volatility is over? In all likelihood, no. We may well see the markets take another dip in the coming weeks before regaining its footing. Market and economic fundamentals continue to improve, and the Fed remains intent of keeping interest rates at or near zero – all positive signs for the months to come.