Sometimes people say that a move in the marketplace is a “delayed reaction” to some other development. This reasoning can frequently be used when people have no idea why some asset or another experienced a big move on a given day. However, sometimes it is a very legitimate explanation…and we think this was the case yesterday.
The Nasdaq (along with the tech stocks) got hit pretty hard yesterday…and we do believe that this was a delayed reaction to the big rise in long-term interest rates on Monday. On Monday, the jump in the U.S. 10yr yield from 1.51% to 1.62% did not seem to have any catalyst. There wasn’t any new economic data that could have accounted for the move…and we did not get any Fed speak that day (or over the weekend). Therefore, seems like the equity market ignored the move on Monday…thinking it would reverse itself to a large degree by Tuesday.
When the yield actually added to its rise, stock investors realized that it was not going to reverse quickly…and they started selling stocks…especially the tech stocks. Remember, the tech laden Nasdaq Composite Index had very disappointing breadth on Monday. The breadth (the number of stocks that advanced on the day vs. the number of stocks that declined) was flat that day…a day when the index had rallied 1.2%! That is lousy “breadth” for a day when the index has rallied more than 1%...so it showed that the tech sector was vulnerable to a decline…and that’s exactly what we got on Tuesday.
The large-cap names were hit particularly hard yesterday…and this has brought an index of the equal weighted FAANG stocks almost 7% below its November highs…and very close to its early December lows. It has also taken the index down close to its 100-DMA…which has provided excellent support since the end of September of 2020. (Remember, September 2020 was the last time the broad stock market saw a correction…with the S&P 500 falling 10% and the Nasdaq giving back 12%. That decline was also caused by a spike in long-term interest rates…when the 10yr yield spiked more than 44% higher in August of that year.)
The rise in rates in December has only been 24% rise from the early December lows so far, so maybe this is not the beginning of a larger decline for the big-cap tech names. However, if (repeat, IF), the equal weight FAANG index falls much further…and takes out its December lows in a meaningful way (which would also take it below its 100-DMA in a meaningful way for the first time in 15 months), it would definitely be a bearish development on the technical side of things.
Wouldn’t it be strange if the week where AAPL reached a $3 trillion market cap…was also the week that gave us a significant intermediate-term top for the tech sector?.........Of course, it is WAY too early to make that call. The 100-DMA has provided excellent support for over a year now…and thus it should continue to do so. However, if the FAANG’s…and the tech sector in general…see any more weakness over the coming days and weeks, it will obviously raise some concerns about the broad stock market as well.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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