(Reuters) – Wall Street’s main indexes tumbled on Tuesday, with the Nasdaq opening down 2% before steadying a bit, as technology-related stocks with lofty valuations extended losses amid worries over inflation.
* STOCKS: S&P 500 down 0.92%, Dow up 0.37%, Nasdaq down 0.34%
* BONDS: Benchmark 10-year notes last fell 6/32 in price to yield 1.6235%, from 1.602% late on Friday. [US/]
* FOREX: The dollar index fell 0.229%, with the euro up 0.34% to $1.217. [FRX/]
TIM GHRISKEY, CHIEF INVESTMENT STRATEGIST, INVERNESS COUNSEL, NEW YORK
“It comes back to this whole inflation issue. That’s the primary factor. That’s what’s concerning people, that inflation is going to spiral out of control. The Fed is going to deny that is an issue. They’ve said they’re not going to be fooled by a temporary spike but the market’s going to think that inflation is really a problem.”
“The valuation levels are very high so the market is priced for perfection which means if there are any issues out there stocks are going to get hit, especially high valuations stocks but there’s nothing saying its just going to be high valuation stocks.”
“The market’s concerned there’s risk the Fed might make a policy mistake by ignoring inflation and this inflationary spike might last a lot longer than we think.”
OLIVER PURSCHE, SENIOR VICE PRESIDENT, WEALTHSPIRE ADVISORS, NEW YORK
‘It’s two parts. One, there are valid valuation concerns as the run-up (for tech stocks) has been significant. Two, as re-opening happens and people go back to the office there’s a rethinking of the balance between tech stocks and re-opening stocks.
“We believe a balance between growth and value is warranted. It’s unlikely over the next two years one will dominate the other.
“(Inflation) impacts subsectors of the market but other forces such as the dollar and bond yields are the bigger drivers.
“(Today’s biggest drags) are biggest winners over the last twelve months. Tech and communication services could have a 10% correction but I would stress that it’s not uncommon or unhealthy.
“You want to get some air out of the balloon and give markets an opportunity to catch their breath. That’s a sign of a healthy market.
“We are also entering into the summer months, a seasonally difficult period for stocks.
JACK JANASIEWICZ, PORTFOLIO MANAGER, NATIXIS INVESTMENT MANAGERS, BOSTON
‘I know a lot of people are spinning the inflation theme as the reason why you are seeing some of the profit taking coming out of the tech sector…What I would expect to be selling off as well if that were really the case, I don’t see that. Treasury yields aren’t spiking… Credit is behaving just fine.
‘Everybody is looking for a narrative and everybody seems to want to point to the inflation backdrop and the inflation concerns as to why tech is getting whacked in here. Why it’s getting hit, I am not 100% sure… People are still long tech, people still are long growth. The large-cap tech names have traded sideways for probably at least the last six months or so, so it’s not surprising that maybe we are finally starting to see some money move out of that.
QUINCY KROSBY, CHIEF MARKET STRATEGIST AT PRUDENTIAL FINANCIAL IN NEWARK, NEW JERSEY
“Big tech (has become) increasingly vulnerable and sensitive to yields inching higher. One of the concerns right now is, are we now moving into an environment where we are going to see yields move higher. There is an assumption that perhaps Friday was a one-off, but the expectations are as long as COVID eases we are going to see a pickup in employment numbers. We’re also going to see input costs continuing to rise. So that’s a concern for rates. Perhaps after Friday the market recalibrated and thought… the Fed may wait to talk about the possibility of tightening. You can have a stretched market as long as the Fed remains committed to keeping rates lower for longer.”
ANTHONY SAGLIMBENE, GLOBAL MARKET STRATEGIST, AMERIPRISE FINANCIAL, TROY, MICHIGAN
‘When you look underneath the surface, over the last week, two weeks, technology, communication services, some of the tech names in consumer discretionary, they have been a source of funds for the accelerating trends across value sectors.
‘Over the last month and certainly in May you have seen a more pronounced shift in leadership. Energy, materials, financials, they have been the net beneficiaries, leading markets higher. Info tech, consumer discretionary, communication services, they have been the laggards. I really think especially after earnings now, investors have a lay of the land that they kind of understand what the profit trends are for all of these sectors. They have been gravitating towards the reopening theme, the sectors that have those reflationary tailwinds that should propel earnings growth a little bit more and they have been taking it from the winners of last year, which is just tech and consumer discretionary and communication services.
‘I think the rotation makes sense. I do think within the Nasdaq maybe a correction could get down to the 200-day moving average’.and then I think long-term investors will use that as a buying opportunity and then they will go back to some of these tech stocks that have those secular tailwinds and they will buy them. I think it’s just a natural rotation based on where we are in the reflationary trade.
(Compiled by the Global Finance & Markets Breaking News team)