The market’s plummeting today, and its descent has only hastened as of noon. Stocks collapsed after getting off to a rough start in the morning despite better than expected unemployment data.
According to the Labor Department, 881,000 new jobless claims were made for the week ending August 29th. Dow-polled economists expected 950,000 new claims by comparison. With the August jobs report due out tomorrow, the market will soon gain a clearer picture of the U.S. economy.
Which, at present, is skewing slightly positive, albeit behind schedule in terms of GDP growth.
“Let me be clear: The only reason we do not have a stimulus bill passed yet is because the economy and the markets are performing much better than people thought possible,” explained Tom Essaye, founder of The Sevens Report.
“The ‘best’ outcome for stocks into tomorrow’s jobs report is for a strong number, but not so much better than estimates that it relieves more pressure on Congress to get a deal done.”
Today’s unemployment report didn’t seem to sway investors, however, amid a selling frenzy. Big Tech got slashed in the carnage as all three major indexes plunged. The Nasdaq Composite endured the worst of it, falling almost 5%.
Analysts were quick to dismiss the morning sell-off as a temporary lapse in the rally and not a more serious correction.
“While we don’t expect a crash to happen again now, we don’t need new highs to grow every day to keep the uptrend alive either,” Frank Cappelleri, executive director at Instinet, said in a note.
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“With the [S&P 500] up 9/10 days and having just logged its biggest advance in two months, it’s certainly earned a period of which to digest.”
Thus far, the “digestion” isn’t going so well. At their worst, Apple (NASDAQ: AAPL) shares dropped more than 8%. Tesla (NASDAQ: TSLA) is down almost 18% from its all-time high.
Now that two of the market’s top stocks are bleeding, almost every other sector is feeling some pain as well, minus a handful of post-coronavirus-crash underperformers.
“Someone hit the ‘sell tech, buy dreck’ button and this is creating a bid beneath beleaguered groups, while [tech] gets pummeled,” noted Adam Crisafulli, founder of Vital Knowledge.
“For tech specifically, the stocks are seeing large percent declines, but this comes after a massive recent rally. Tech has been untethered from fundamentals for a while and momentum can work in both directions.”
Just yesterday, we took a look at the S&P 500 forward P/E multiple, which exceeded its high from the “Dot Com” bubble – something that implies stocks are woefully overvalued.
And in the tech sector, that certainly seemed to be the case. Tech outpaced its earnings by a mile, even if Q2 performance beat estimates handily.
Meanwhile, outside of the Big Tech offerings, equities have largely stalled since June.
“This is this ongoing story of tech street, Wall Street and Main Street all diverging,” said Ron William, market strategist and founder of RW Advisory.
“If we look at the equal-weighted index of the S&P 500, it has barely broken above its June peak and has actually been flatlining ever since, so we can see there the ’FAANG-tastic divergence, as I call it.”
If stocks are going to continue rising, they’ll need help from the bottom.
If a rotation out of tech eventually happens, and the lesser sectors can kick-off a prolonged rally, non-tech focused bulls could be in for a pleasant surprise.
But if the selling gets bad enough that all buyers (not just tech buyers) start to flee, look out below.
Because the market may face another major dip from which few stocks – even the most defensive ones – will be spared.