Why Stocks Selling Off Monday

Why Stocks Selling Off Monday

Stocks sold off Tuesday in a move once again led by big tech stocks. Investors have been reassessing tech valuations, while cyclical sectors experience their own modest headwinds. 

The S&P 500 fell 2%, dragged down harshly by the components of the tech-heavy Nasdaq 100, which fell 3.4%. The 10-Year Treasury yield fell to 0.68%, signifying pressed inflation expectations, consistent with the self-off in cyclical stocks, which is independent from the move in tech. Still, since tech stocks have a heavy market cap weighting in the S&P 500, the index was falling particularly hard. 

“Last week’s decline was technical in nature but fundamentally triggered,” wrote Mike Wilson, Chief U.S. Equity Strategist at Morgan Stanley in a note. Tuesday’s negative action continues the same from the 6% decline on the Nasdaq 100 between Thursday and Friday. On those days, large cap cyclical value stocks far outperformed the broader indices. “The market began to contemplate higher back-end rates as fiscal stimulus passes,” Wilson added. Higher interest rates, which have emerged in the past few weeks as the Federal Reserve’s new policy is highly inflationary in nature, may put pressure on the speed of the economic recovery, but they also reduce the value of corporate profits. The lack of new fiscal stimulus also threatening the speedy economic recovery. 

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