Tech stocks trip as Powell pivot spurs “rotation trade” talk
investmentnews.comThe world’s largest technology companies dragged down stocks after rally that put the market on the brink of its all-time highs, with Nvidia Corp.’s earnings due in just a few days.
A Bloomberg gauge of the “Magnificent Seven” megacaps sank 1.5%. Conversely, a measure of smaller firms rose on speculation the so-called “rotation trade” out of the “safety” of big tech would be revived after Jerome Powell signaled Friday the Fed will cut rates soon. While most stocks in the S&P 500 gained, the US equity benchmark edged lower on Monday — a consequence of weakness in the tech giants that dominate it.
“Powell sealed the deal for a September cut at Jackson Hole — leaving intact our thesis for continued broadening/rotation,” said Ohsung Kwon at Bank of America Corp. “But don’t sleep on Nvidia earnings, a consistent driver of S&P returns and still a risk to markets if they disappoint.”
Strong flows from corporate buybacks, systematic funds and retail investors are expected to push stocks higher in the coming weeks, according to Goldman Sachs Group Inc.’s Scott Rubner.
He estimates there will be $17 billion of “unemotional demand between robots and corporates every day this week.” Rubner also sees a so-called “green sweep” for commodity trading advisers, or CTAs, over the coming week, which means those funds will likely be buying stocks however the market trades.
Traders continued to keep a close eye on US policymakers, with Fed Bank of San Francisco President Mary Daly telling Bloomberg Television she believes it’s appropriate to begin cutting rates. Her Richmond counterpart Thomas Barkin says he still sees upside risks for inflation, though he supports “dialing down” rates in the face of a cooling labor market.
The S&P 500 fell
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