(Bloomberg) — This stock market rally in the first half of 2023 comes as investors bet on resilient U.S. consumers, hype around artificial intelligence and technology to keep stock prices high. It was built on the back of stocks.
But that support has wobbled throughout the month as the Federal Reserve remains keen to keep interest rates above 5% next year and weak consumer confidence triggered a selloff that just pushed tech stocks into a correction. Ta. The entire S&P 500 index fell 1.5% on Tuesday, hitting its lowest point since June 7.
The brunt of the sell-off was felt by the tech industry, with the S&P 500 Information Technology Index down more than 10% from its July high. Gage also just recorded his third 1% down session in the last five. Meanwhile, consumer confidence fell to a four-month low, revealing cracks in the economy’s main engine.
The Fed’s hawkishness hasn’t been a problem for stock markets through much of this year, but officials have continued to signal that they may need to keep interest rates higher for longer than investors expected. , the market mood has deteriorated. The fear is that central banks’ zeal to curb inflation could destroy the economy, and that, combined with consumer wariness, could leave markets vulnerable to a reversal following the collapse of big tech giants. This means that there is a possibility that it will happen.
“Concerns about rising yields have not gone away,” said Quincy Crosby, chief global strategist at LPL Financial. “The concerns have become more acute, and while tech stocks have been able to hold up, cracks are starting to show.” said. “The U.S. consumer, a very important component of the market, is becoming increasingly anxious, and that’s not what the market wants.”
The S&P 500 Infotech index fell 1.8% on Tuesday, extending its decline to 11% from its July high as the 10-year Treasury yield hovered near its highest level since 2007. The S&P 500 index fell 1.5%.
Sentiment soured after Minneapolis Fed President Kashkari said he would support one more rate hike this year if the economy performs better than expected. This came hours after JPMorgan Chase & Co.’s Jamie Dimon warned that the worst-case scenario of the Fed’s benchmark interest rate reaching 7% along with stagflation remained a possibility.
Even once-feisty consumers are getting the message, as the steep drop in the Conference Board’s Consumer Confidence Index shows. Meanwhile, the consumer expectations index for the next six months fell to 73.7, below the 80 level that historically signals an economic recession within the next year.
Personal care companies, home goods stores and online marketplaces were the biggest losers on the S&P 500 index on Tuesday, pushing the index to its lowest level since June. Etsy was third in the index, down 4.4%, and Estée Lauder was down 4%.
Read: U.S. consumer confidence falls to four-month low in outlook (2)
While the global nature of technology companies provides some protection from domestic growth woes, they are not immune. Matt Maley, chief market strategist at Miller Tabak & Co., said the selloff in mega-growth stocks, which have been the market’s best performers for much of this year, has been driven by concerns about a prolonged period of high interest rates. It is becoming a source of funds for investors.
“Now that it’s finally dawning on us that interest rates are certain to remain high for an extended period of time,[investors]are rapidly becoming concerned about the valuation levels of these large-cap tech stocks,” Maley said in an email.
Of course, even after falling 10% since July, the S&P 500 Information Technology Index is still up 32% in 2023, compared to an 11% gain for the S&P 500 Index. But investors doubt whether the group will return to its first-half trajectory anytime soon. soon.
Positions in the tech-heavy Nasdaq 100 index are now $8.1 billion in unilateral net short positions, according to Citigroup strategists, and all long positions have been eliminated.
Todd Thorne, managing director of ETFs and technical strategies at Strategas Securities LLC, said, “Some of it is profit-taking, and some of it is because the upward trend in long-term interest rates is really taking hold, so there’s a lot of uncertainty in the stock market. There is,” he said.
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