The Market: Being Stalked By The Bear

The Nasdaq composite closed down nearly 10% in six trading days. This was accompanied by smaller sympathetic declines in the Dow, S&P 500, and Russell 2000.

I have a tough time calling last week’s reversal either stunning or surprising, as it pertains to the runaway train market in the NASDAQ and the particular route known as the FAANG line. Before the decline that began September 3, most anyone would have given the opinion that this group was at least way overextended and, in some cases, grossly overvalued.

Tech: A Pandemic Winner

When the COVID-19 crash began back in February, the market did its usual thing: took everything out back and brutalized it. However, the players quickly began to separate winners from losers (i.e., slower to recover names).

The Nasdaq broke out to new all-time highs and did not look back. Names like Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT) (basically, any tech with products in the consumer arena) had to be huge beneficiaries of the stimulus -- $1200 for every taxpayer below $75,000/$150,000 income limits, plus $500 per dependent.

Remember, even at the worst of the job losses in the United States, much of the workforce was still employed. These checks represented a huge windfall for many. It is no wonder that this found money might have had an impact: big earnings surprises at Apple and Amazon, people at home upgrading personal technology, and just shopping online.

Of course, the flip side to all of this is that there has been no additional stimulus passed to benefit outsized consumption, plus there was no universal extension of the supplemental unemployment compensation that came in the first stimulus bill. At best, if a state chips in, the number has dropped from $600 per week to $400.

In other words, the stimulus and unemployment benefits may have pulled demand forward to the detriment of the third quarter. Earnings may not be as strong in tech as some may be forecasting.

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Disclaimer: The information presented in represents my own opinions and does not contain recommendations ...

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