Is the ‘big turnover’ in the stock market underway as coronavirus cases increase? Or is it a false sunrise? This is what the experts think

The tyranny of gigantic tech stocks, which has supported the US equity market since March, had a major impact this week.

For months, the most valued e-commerce and technology companies have staged an almost unrelenting rally during a public health crisis that has caused tremendous pain in the national and global economy.

However, last week’s exchange conclusion on Friday highlighted some smoothness in the uptrend of megacapitalization tech names, raising questions about whether a rotation of those high-level leaders to less loved and economically sensitive sectors, As manufacturers, energy, finance and industrial companies, it is underway.

Among the group considered to be at the forefront of the technological rally, Facebook FB,
+ 0.45%,
Google-parent Alphabet GOOG,
+ 0.12%
and Microsoft
Only the iPhone maker ended the week in positive territory.

Meanwhile, Netflix was the worst performer among that cohort, with 10.2%, registering its worst weekly slippage in a year; and Amazon’s 7.4% decline was its worst weekly drop since the period ended December 28, according to FactSet data.

As a result, the Dow Jones Industrial Average DJIA blue-chip,
Composed of 30 companies with only four traditionally considered technological in nature, it outperformed the Nasdaq by 3.36 percentage points last week, 2.29% more than the technology-laden Nasdaq Composite COMP,
+ 0.28%
1.08% weekly decrease. According to Dow Jones Market Data, that marked the highest weekly performance of the 124-year benchmark against the heavy tech benchmark since June 5.

And the broader SXP 500 SPX market index,
+ 0.28%
It produced a weekly gain of 1.25% which was 2.32 percentage points better than the Nasdaq, representing the highest S&P performance above since the week ending February 5, 2016.

In addition to that, small-cap stocks, considered more health-sensitive in the economy, reflected in the Russell 2000 RUT index,
+ 0.39%,
gained 3.6% for the week.

Drilling down into a deeper, value-style investment that has underperformed for years is flirting with a kind of comeback, with the Russell 2000 RUJ index value index,
It tracks small businesses that are undervalued by some metric, earning 4.3% during the week. Meanwhile, its comparable growth rate RUO,
+ 0.99%,
which follows the performance of companies that have a tendency to constantly increase their profits, increasing 2.9% less stellar.

Similarly, a publicly traded fund that tracks the S&P 500 value index, the SPDR Portfolio S&P 500 Value ETF SPYV,
+ 0.30%,
The week ended 3.4%, compared with a 0.2% decrease for its comparable growth ETF, the SPDR Portfolio S&P 500 Growth ETF SPYG,
+ 0.23%.

The overdue financial institutions registered an advance of 2.1% for their best weekly recovery since the week ended on June 5, as measured by the Financial Selection Sector SPDR ETF XLF,
; whereas industrial XLI,
+ 0.60%
it shot 5.9% during the week, also posting its best weekly gains since early June.

But was this a rotation in good faith in those categories and styles that many strategists consider necessary to push the market to new heights? Or is it another fake head?

Quincy Krosby, chief market strategist at Prudential, told MarketWatch in an interview that it is unclear whether the technology setback over the past week was profit taking after a long series of gains, or a rotation in which investors They sell technology and use the proceeds to buy assets in areas they think may have more room to run.

This is not the first time that markets have seen flashes of tech name growth and growth, only to be disappointed. Bargain hunters in late May collected battered stocks amid optimism about progress toward a coronavirus vaccine. But moves since then have had a start and a start, with the S&P 500 and Dow set around their most recent peaks in June, while the Nasdaq hit 27 record highs in 2020.

The recovery in the market up to this point has been supported by companies that have considered themselves more resistant to the uncertain and socially distant perspective posed by the COVID-19 public health crisis. That way, tech companies like the video conferencing company. Zoom Video Communications
which is up 262% so far this year, and the tech giants mentioned above are seen as defensive plays.

However, a sustainable rally is one that should include so-called cyclicals, experts say.

Investors should be wondering what the next issue will be on the market, said Gerald Sparrow, chief investment officer of the Sparrow Growth Fund SGNFX,
+ 0.99%,
which carries a four-star rating from the Morningstar fund tracking service.

“I think it will be a combination of cyclical stocks and electronic commerce,” Sparrow said in an interview. More generally, future market gains are likely to be more balanced, “with the participation of all sectors.”

Mark Arbeter, a leading technical strategist, seems to agree with the notion that technology should continue to be part of the next highest burst for stocks, if you have one, noting that the influence of megacap tech companies also means they can drag the general market lower too.

“How these highfliers act in the coming days, as well as the Nasdaq, could be a great revelation as to whether the general market will finally break higher and hit all-time highs now, or if they break lower, dragging the general market with them and squeeze in some excesses before heading to the record highs in the market, “he wrote in a research note from July 16.

However, the way forward will be difficult as companies continue to face the economic dangers of the coronavirus pandemic. The Wall Street Journal reported that the four largest banks, JPMorgan Chase & Co. JPM,
Wells Fargo
and Bank of America
It set aside $ 33 billion to protect against impaired loans in the second quarter, indicating that the worst effects of the epidemic are far from over.

In fact, the US reported more than 71,000 new cases of coronavirus on Friday, representing the second-highest day of recorded infections, with the US observing 3.6 million confirmed cases in total, amid a revival in various states, data compiled by Johns Hopkins College Show. The global case count now exceeds 14 million, with nearly 600,000 lives claimed by the epidemic that started in December.

The recent surge in cases in the US states, including California, Texas, and Arizona, has so far been ignored by the stock market, but could hinder the rebound if it results in a slow and unstable economic recovery, such as some economists predict.

“Wall Street remains optimistic, but sentiment on Main Street is turning grim in response to the increase in Covid-19 cases that is causing a renewal of closure restrictions,” wrote Bob Schwartz, an economist at Oxford Economics, in a Friday investigative report.

Week ahead

Markets will gain more insight into the economy when a parade of corporations, nearly 500 companies, reports quarterly results next week.

A group of tech names will be featured, including Dow components International Business Machines Corp. IBM
+ 0.88%
on Monday Microsoft on Wednesday and Intel Corp.
+ 1.45%
Thursday. Elsewhere, profits from the electric vehicle maker. Tesla
+ 0.01%
on Wednesday it will be closely watched as American Airlines AAL,

On the economic data front, major reports will be sparse with updates focused primarily on the housing sector. In Tuesday, the Chicago Fed National Activity Index for June will be released at 8:30 am Wednesday, a report on existing home sales for June will be released at 10 am, with Thursday viewing the usual update on weekly unemployment claims at 8:30 am and a report on the main economic indicators at 10 am Friday, market participants will be on the lookout for manufacturing and services flash PMIs for July at 9:45 am and will report on new home sales for June at 10 am