On July 16, 2021, traders on the New York Stock Exchange bear the Blend sign.
Source: New York Stock Exchange
Strategists believe that after the stock sell-off on Tuesday, there will be more sell-offs in the future, led by technology stocks and large growth stocks.
A sort of Interest rates have risen sharply in the past few trading days It hurts the market, especially growth stocks. At Tuesday’s high, the yield on the benchmark 10-year Treasury note climbed to 1.56%, an increase of approximately 25% since the Federal Reserve meeting last Wednesday.
this Standard & Poor’s 500 Index Closed down 2%, while Nasdaq Due to the high concentration of technology stocks in the index, the stock price fell 2.8%. Ten of the 11 sectors of the Standard & Poor’s 500 Index fell, while the technology sector fell 2.9%. Energy is the only riser, up 0.4%
Katie Stockton, founder of Fairlead Strategies, said: “We have seen a decline in the gap generally driven by large-cap stocks, which is currently down 2% to 5%.” Apple, Amazon, Facebook, Nvidia with Microsoft.
She said these names “obviously are the biggest drag on the stock market.” “Because they are the biggest, it shakes emotions.”
Stockton said those stocks, plus Tesla, Accounting for about 25% of the S&P 500 Index.
“Pay close attention to the momentum behind them,” she said. “Only their pure footprint can cause problems. When they do, it affects emotions. People rely on Google and Microsoft to never fall. Now, they are undergoing a reality check.”
Stockton added that she is focusing on the S&P 500’s downside target of 4,238, which was the previous level of support. The S&P 500 index closed at 4,352.63 on Tuesday.
Sam Stovall, chief investment strategist at CFRA, said he has always expected a sell-off. He also pointed out that the S&P 500 index may test 4,128 points, the 200-day moving average. Stovall said that falling to this level will make it more than 5% lower than the current level, and drop by about 10% from peak to trough.
The S&P 500 index was below its 50-day moving average on Tuesday, after the index rebounded and rebounded above it last weekend. Last week, there was an obvious violation of 50 days. 50 days is the average of the closing prices of the past 50 days. When the index falls below the index, it is regarded as a negative momentum indicator.
Stovall said the decline in large-cap stocks is significant.
“If the generals start to get hit, it shows that everyone is vulnerable, so it seems that as interest rates rise and technology stocks fall 2.5%, I think there is more downside potential,” Stovall said.
Large technology companies and growth companies are sensitive to higher interest rates because their high valuations are based on future growth and cash flow. When interest rates rise, the value of future cash flows is discounted.
But Oppenheimer technical analyst Ali Wald said that the fact that large technology companies are selling means that popular large-cap growth stocks are joining many other stocks that have fallen sharply.
“It has not overflowed into the market, now it has overflowed. We think this is a sign of surrender,” he said. Wald added that he believes that the S&P 500’s July low of about 4,230 points has more downside.
Stovall said that any correction seems to be under control and will not become a bear market. “Unless we make projections on earnings, GDP and interest rates, I don’t think this will go beyond the correction range,” he said.