Tech Sell-Off Deepens: Is This the End of the Bull Run?
The tech-heavy Nasdaq and S&P 500 have experienced a significant sell-off this week, prompting concerns about the future trajectory of the market. While the decline is within historical averages, market experts like Carter Worth, founder and CEO of Worth Charting, believe this downturn could be more prolonged and impactful than typical market corrections.
"This selloff is 14 sessions in the making," Worth explained, pointing out that it has already surpassed the average duration of previous declines. "The preceding advance was steep and uncorrected, suggesting this may not be an average or median selloff."
A key symptom of this deeper correction is the underperformance of the tech titans, known as the "MAG 7," which have historically fueled market gains. "Even the small-cap stocks, which were initially anticipated to benefit from a rotation away from tech, have given back their gains," Worth noted. "The severe nature of the selling, including heavy volume drops and gaps, suggests that these stocks may continue to struggle."
Worth also pointed to Nvidia’s recent performance, stating that the company’s June 20th key reversal day – where it hit a new high before closing on the lows on heavy volume – could be a watershed moment that signaled the tech sell-off. "It was a crescendo of panic buying followed by exhaustion, and we’ve seen substantial declines in semiconductors and Nvidia since," he explained.
Despite the challenging outlook for tech, Worth identified a glimmer of hope in the energy sector. He highlighted ExxonMobil as a stock with defensive qualities, strong relative performance compared to its energy peers, and a two-year range that has not yet yielded a new high. "Exxon is a good place to be both offensively and defensively," he asserted.
As investors navigate this volatile market, the technical signals and expert insights suggest a potentially prolonged period of uncertainty. While the tech sell-off may be within historical norms, its depth and the weakness of the tech giants could result in a more impactful downturn than previous corrections. Only time will tell if this is a temporary dip or the beginning of a more significant shift in the market landscape.
Wall Street Reeling After Volatile Week: Is It Time for a Longer Correction?
The stock market experienced a turbulent week, with the S&P 500 experiencing its largest selloff in 14 sessions, dropping over 9.7%. While some analysts dismiss the recent downturn as a typical market correction, others suggest the unprecedented complacency preceding the selloff might indicate a more protracted downturn.
Key Takeaways:
- The current selloff marks the 241st instance of a 5% or greater decline in the S&P 500 since its inception in 1927.
- Despite the significant drop, the current selloff is within the historical averages for both duration and magnitude.
- The market’s lack of a "2% move" in either direction for an extended period suggests a potential for a more drawn-out correction.
- The "MAG 7" (Microsoft, Apple, Google, Amazon, Tesla, Nvidia, and Meta) have been underperforming the broader market.
- The recent downturn has erased much of the year-to-date gains for the S&P 500, highlighting the heavy influence of mega-cap tech stocks on overall market performance.
The "MAG 7" Under Pressure: A Technical Perspective
The underperformance of the MAG 7 is a cause for concern among analysts, with several factors highlighting their vulnerability. Many of these tech giants experienced heavy volume drops and gaps, indicating a significant shift in sentiment. This suggests a potential for further weakness in these stocks, particularly for companies like Microsoft and Amazon which saw notable earnings-related drops.
The Nvidia Conundrum: A Watershed Moment?
The tech sector’s reliance on AI has driven much of the recent market optimism. While the hyperscalers have reaffirmed their Capex for AI development, concerns remain due to Nvidia’s recent performance. A key reversal day on June 20th, marked by a new high followed by a heavy-volume close on the lows, has raised alarm bells among technical analysts.
Carter Worth, founder and CEO of Worth Charting, believes this event could mark a significant turning point. "Those are very important days, they’re key reversal days," Worth highlighted. "It represents a crescendo of either panic selling or panic buying. When you see a stock going higher and higher, at some point, there are no buyers left. That’s what we saw on June 20th. The intraday price action was like a child slipping off a chin-up bar, exhausted, with no one left to buy. And it went down and down and down."
A Bright Spot: ExxonMobil
While the broader market faces uncertainty, ExxonMobil offers a potential refuge for investors. Worth identifies ExxonMobil as a defensive stock with two compelling factors.
"It’s acting much better than its other energy super cap names, whether it’s integrated or drillers," Worth explained. "Plus, its relative performance to the S&P is strong. It’s been in a two-year range and hasn’t made a new high, unlike the general equity market. I think Exxon is a great place to be, both defensively and offensively."
Navigating Volatility: A Long-Term Perspective
The recent market turmoil highlights the ever-present volatility inherent in investing. While short-term fluctuations can be unnerving, maintaining a long-term perspective is essential.
Worth suggests the market highs for the year may be behind us. "My hunch for the market is that the highs are in for the year," he said.
Investors should remain vigilant, monitor key indicators, and potentially adjust their portfolios to align with the shifting market landscape. The importance of diversifying investments across different sectors and asset classes remains crucial.
In conclusion, the current selloff presents a stark reminder that even in a bull market, volatility can rear its head. While the immediate impact might seem worrisome, the historical context provides a valuable perspective for navigating this period of market uncertainty. By focusing on fundamentals, evaluating technical indicators, and remaining disciplined, investors can position themselves to weather the storm and emerge stronger in the long run.
