This is Why We Booked Tech Profits…
Federal Reserve chair Janet Yellen tempted the fates Tuesday, declaring that we won’t see another financial crisis in our lifetimes.
“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” Yellen said.
Unfortunately, the market gods were listening.
They were not amused…
The Nasdaq shed 100 points by the closing bell. That’s a drop of more than 1.6%, plummeting the composite near one-month lows. The S&P 500 and the Dow also finished the day on their lows…
We’ve tracked the potential for a tech stock sell-off since shares showed their first signs of exhaustion weeks ago. Investors set their crosshairs on tech stocks, with the FAANG brigade (Facebook, Amazon, Apple, Netflix and Google) and semiconductors taking most of the heavy damage yesterday.
2017 has been all about the big tech stocks. Every financial fluff piece has marveled at their unstoppable strength. It should come as no surprise that the cap-weighted Nasdaq Composite is still up more than 14% year-to-date – even after factoring in yesterday’s sell-off.
But if these conditions persist, as we noted back on June 5th, it could be time for this winner-take-all market to share some of its spoils. We’ve already seen unloved sectors like small-caps sneak higher as mega-cap tech falters. Now the big banks are catching a bid amid the tech weakness.
That’s why we cashed in some of our big tech winnings earlier this month. After posting gains of more than 30% in less than six months, it’s time for these over-loved stocks to take a break…
Even the news cycle is now beginning to turn against the exuberant bulls.
We recognize that politics and the markets are two separate beasts. But plenty of investors are counting on Republicans to score legislative victories this year. So we’re already hearing about backlash after lawmakers have decided to delay the health care bill vote until after the July 4th holiday.
Too many holdouts are getting in the way of passing the bill that would ultimately repeal and replace the Affordable Care Act. That’s made some investors wonder whether anything will get done at all…
“While this bill is important to some sectors, market participants are more concerned about the GOP’s ability to push through tax reforms (which are already priced into the market)” The Wall Street Journal’s Daily Shot notes.
Oh, and don’t forget the massive cyberattack that shook the globe yesterday.
“A new cyberattack similar to WannaCry is spreading from Europe to the U.S. and South America,” Bloomberg reports, “hitting port operators in New York, Rotterdam and Argentina, disrupting government systems in Kiev, and disabling operations at companies including Rosneft PJSC, advertiser WPP Plc. and the Chernobyl nuclear facility.”
You’ll no doubt recall the ransomware cryptoworm WannaCry. WannaCry takes over files and demands $300 to restore access. According to multiple media reports, more than 200,000 computers in at least 150 countries initially fell prey to the hack last month. Cyber threats are becoming a bigger issue by the day. That’s probably good for our cybersecruity plays in the long-run, but bad for short-term market sentiment.
Now we have the Fed running victory laps, political bickering and unprecedented cyber warfare dominating the financial news. After an incredible first half of the year for stocks – especially tech names – a summer pullback is in the works.
You’re already perfectly positioned to handle additional market weakness. We’ll remain on the lookout for any new “rotation trades” as the long weekend approaches…