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Stock market crash? No, but a rotation away from U.S. tech stocks is shaking up some investors

Is the stock market crashing? No, but it is rotating away from U.S. tech stocks

3/4/2021 11:18:00 PM

Is the stock market crashing? No, but it is rotating away from U.S. tech stocks

Social media to the contrary, the stock market is far from “crash” territory, as anyone with a working memory of last year's pandemic-inspired selloff would...

But a rotation away from the market’s recent leaders certainly does appear to be under way and volatile moves can be unsettling to some investors.That could help explain why the term #stockmarketcrash was trending on Twitter Thursday, even though the Dow Jones Industrial Average DJIA, -1.33% and the S&P 500 SPX, -1.55% remain far from even entering what’s known as a market correction, defined as a pullback of 10% from a recent peak.

The question investors should ask before tripping the alarm bells, however, is whether the price action is surprising or out of the ordinary, Brad McMillan, chief investment officer at Commonwealth Financial Network, told MarketWatch in a phone interview.

And the answer is no, given that a backup in bond yields, which seem to largely reflect increasingly upbeat economic expectations, look to be the main culprit, McMillan said.While the tech-heavy Nasdaq Composite COMP, -2.28% was flirting with correction territory, the Dow Jones Industrial Average DJIA, -1.33%, the U.S. market’s popularly followed gauge, was less than 4% below its all-time high set last month. The S&P 500, the large-cap U.S. benchmark, was less than 5% down from its recent record.

Thursday’s market weakness echoed the wobble seen last week. Both bouts of selling were sparked by a selloff in the Treasury bond market, which pushed up yields. The yield on the 10-year Treasury note TMUBMUSD10Y, 1.538%, which last week spiked to a more-than-one-year high at 1.6%, pushed back above 1.5% on Thursday. Remarks by Federal Reserve Chairman Jerome Powell seemed not to calm concerns that a potential pickup in inflation could see the central bank begin to scale back monetary stimulus earlier than expected, notwithstanding its pledge to let the economy run hot.

The Nasdaq was down more than 2% for the day, while the Dow, which fell more than 700 points at its session low, remained off around 320 points, or 1% on Thursday and the S&P 500 shed 1.2%. Those are sharp daily drops, but not extraordinary.And it’s not unusual for stocks to begin pulling back as yields begin to rise, McMillan noted. It’s also not surprising that highflying growth stocks, which have seen valuations stretched in the post-pandemic rally, bear the brunt of the selling pressure.

Investors appear to be taking profits on those highfliers and using the proceeds to buy stocks of companies in sectors more sensitive to the economic cycle. The outsize weighting of tech- and tech-related shares in major indexes can leave them vulnerable to weakness as that process takes hold.

The price action of mega-technology and discretionary stocks — Apple Inc. AAPL, -1.85%, Microsoft Corp. MSFT, -0.45%, Inc. AMZN, -1.11%, Facebook Inc. FB, +0.45%, Google parent Alphabet Inc. GOOG, +1.10% GOOGL, +1.07%, Tesla Inc. TSLA, -5.11% and Nvidia Corp. NVDA, -3.94% — now make up 24% of the S&P 500, noted technical analyst Mark Arbeter, president of Arbeter Investments.

“The weakness in large-cap tech has been weighing on the broad market averages sparking concerns of a market top and the end of the cycle. From our perspective breadth remains strong, a characteristic that is typically not present at market tops,” said Kevin Dempter, an analyst at Renaissance Macro Research, in a Thursday note.

Related: The stock market’s most sensitive sector says cycle isn’t anywhere close to turningSmall-cap discretionary stocks are at absolute highs, as well as multiyear highs relative to large-cap discretionary stocks, he said, which is a sign of broad-based participation. Trends are also strong for sectors, like energy and banks, that tend to be winners in higher-yield environments, while more economically sensitive groups like transports and services are also benefiting.

“Rather than a market top, we think this is rotational in nature with limited downside and going forward we want to be overweight high yield winners like banks and energy as there is likely further outperformance in these groups to come,” Dempter wrote.

So what about that crash? The Dow continues to cling to a gain for 2021 and is less than 5% off its all-time high set last month, meaning that the most popularly followed stock-market gauge isn’t yet even in correction territory, typically defined as a fall of 10% from a recent peak. And it’s far from a bear market, which is defined as a 20% pullback.

Not all bear markets are the product of a crash — a more nebulous term, but one that implies a sudden and sharp fall. Some analysts define a crash as a one-day drop of 5% or more. Others see a typical crash as a sudden, sharp drop that takes the market into a bear market and beyond in a matter of a few sessions.

That was the case last year as it became apparent the COVID-19 pandemic would bring the U.S. and global economy to a near halt. The S&P 500 plunged from a record close on Feb. 19, dropping around 34% before bottoming on March 23. Read more: MarketWatch »

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Why are you saying this? Is it because people are going to cash faster than greased lightning? Such crap. If the tech stocks are slumping, what justification is there for any other stocks to rise. There are no other growth industries. Biden has lost more jobs in 1st month then gained after opening up the country. We should be getting back to where we were LY at this time. But he will convince you it can't be done Name a job Biden has created? Hell he even took a job away from the guy putting a log on the fire

that's BS. it's crashing stockmarketcrash2021 Marketwatch, scion of Murdoch, sister of WSJ, Realtor. com, and News America Marketing- Your marketing is our business, gets paid to sugarcoat this shit, and they want you to pay them for their shit. Don't be a sucker for Murdoch's Wall Street sugarshit. You should have said that two weeks ago. The profit taking is about done, watch tech explode again

thanks Pass trillions in spending and promise even more this is what happens. The housing market will drop next do to rising rates. High unemployment especially with minorities and Biden stops funding on wall causing illegals to line up to come here. And it’s only been 2 months. DJI = down 1.5% Nasdaq = down 2.5% SPX = down 1.75% RUT = down 3.15% This is not a rotation lol....

$PLTR is green which is all that matters. No... it’s a crash Every sector is red... Who wrote this? Jay Powell? 'stock market crash? no' we'll see how well this tweet ages