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After a sharp decline on Thursday and Friday last week, the U.S. stock market began a holiday-short week on Tuesday on a similar downbeat note.
On Tuesday, all three majors suffered the most losses with Nasdaq. The tech index fell 1.1% and officially entered the correctional zone, breaking 10% with a total decline from its recent highs. And with the S&P 500 hitting a record high last Wednesday, the benchmark index is now down just under 7%.
Over the weekend, Morning Brief’s inbox is filled with strategists commenting on Wall Street, trying to make sense of how the market went from a pleasant record to a high in a few days.
Many strategists cited reports in the Financial Times and the Wall Street Journal – among other outlets – that explored Softbank’s role in buying call options from major U.S. tech companies, causing their share prices to bid faster.
A brief outline of this story is the aggressive bets by Softbank that the share price of shares of companies such as Amazon (AMZN), Micro (Ft (MSFT), Alphabet (GGL), and Tesla (TSLA) – according to the filing – is the share of the company’s shares in August. Buyers will rise and push sellers down the road.
However Mike Wilson, equity strategist at Morgan Stanley, said in a note on Tuesday that “the selloff was technical, not triggered.”
In other words, while Softbank may have distorted the options market in a market-facing situation where compelling buyers and forced sellers of shares created artificial instability, the economic background of this decline supports the case for lower stock prices.
“Most people are aware of the significant call purchases that led to the August rally and the sharp decline in tech stocks last week,” Wilson writes. “We feel that as the financial stimulus passes the market begins to reflect on rear-end rates, the economy continues to reopen, and elections are decided.”
Earnings versions
And a re-stock rating of many of the best-selling stock prices in the market, higher rates could challenge the valuation picture. Wilson sees a combination of further progress on vaccines, elections, stimulus, avoiding additional shutdowns, adjusting the market for the Treasury’s Treasury Yield in the U.S. economy, as well as the Fed’s new inflation structure. Earnings versions And a re-rating of many of the market’s most boosted stock prices, rates will challenge the valuation picture.In the wake of the rapid turnaround in market fortunes last week, some investors were also considering changes in the market, such as tech bubbles, especially as the focus of the sector came from leading tech stocks. But Oliver Jones, a strategist at Capital Economics, disagrees.
“Even if we see more volatility in major tech stocks in the coming weeks, we are not signaling this in the sense that the major dot com-style tech bubble will burst and pull the rest of the market down with it. , For two main reasons, ”Jones writes.
“First … a significant part of the influence of big tech companies has been driven by fundamentals. While the options market may have contributed some time to Shennig, the main catalyst for their rally is the fact that their businesses have performed extremely well, both fully and in relative terms, during the coronavirus crisis. That hasn’t changed in the past week.
“Second, unlike in the dot com era, investors are weaker than in almost everything outside of big technology,” Jones adds, adding that volumes in options linked to expanded indices suggest that investors are focusing on protecting themselves if we continue to market. Should be tolerated. Beware of the wind rather than selling.
In short, the only similarity between the decline of the last few days and the tech bubbles is that tech stocks are included.
On JPMorgan, strategists John Normand and Federico Miccardi note that the importance of big technology in this rally creates a scenario where this selloff gets even more attention that you would otherwise expect investors to pay a 7% drop in S&P.
“The decline in global equity over the last few days is the third, softest correction since global markets rallied in late March,” writes Normand and Mick Nacardi, “but it will probably provoke more debate than the previous episode for one reason: The biggest concentration issue is where the credit markets are headed. “
“It’s easy to imagine the elements of a complete hurricane if it creates a risk for the region, which has huge consequences for the allocation of currency across the country and in global sectors,” he says.
“These will include: higher interest rates, which hurts long-term assets; Vaccine-administered reversal of home fixation from work; And regulatory feedback ranging from relatively regular (penalties) to more existing (disruptions to business practices, disruptions). All are possible on the long horizon and under some Washington-Washington regime, but Trifekta probably doesn’t seem to be under the policy mix proposed by Trump’s second term or the first Biden. “
In this outline, then, it seems that most strategists on Wall Street will have their own lens through which to explain the doo journey of the market narrative, how to think about the current moment, have some key-lines.
The market became more fragile with a focus on profit concentration and technology. Backing up treasury yields may change some key assumptions about equity valuation. But the scenarios for stable losses in the market right now remain outside the consensus framework.
Wilson writes, “We have been very creative in this new bull market. “However, it will be more difficult to make money here if one is long [the S&P 500] Or [the Nasdaq]”
@ Miles Udland“data-reactid =” 49 “>By Miles Udland, Journalist and co-anchor The final round. Follow him @ Miles Udland
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