Tech stocks led the sharp decline in US markets today as there continues to be little progress towards a compromise that would raise the debt ceiling. The S&P finished down 1.2% and closed below the key 1660 pivot that we have been watching, but it was the Nasdaq that saw more extreme damage with a 2.00% drop.
Tech stocks have been a bright spot in the market dating back to early Summer, but today they got sold in one fell swoop. Bio tech stocks, which have been another source of relative strength, also got punished in today’s action. The Biotech ETF (IBB) finished down 4.37%.
In a reversal of recent trends, you saw safety sectors like Utilities (XLU) and Consumer Staples (XLP) show relative strength as the government shutdown drags on. Gold (GLD) tried to bounce early amid the equity market turmoil, but the poor old dog finished with a whimper down 0.19%. If GLD cannot stage a meaningful bounce on a day like this, it doesn’t bode well for its future price action.
There were too many massive sell-offs in tech today to list them all, but some standouts to the downside were LinkedIn (LNKD) -6.1%, Yelp (YELP) -7.6%, Facebook (FB) – 6.7%, and Pandora (-7.8%), prompting some pundits to suggest perhaps hedge funds are dumping current holdings of some social media-type stocks to make way for Twitter (TWTR) shares in their portfolios.
We have been pumping caution and restraint in this choppy and headline-driven tape, and even if you weren’t heavy short today you could have been out of harm’s way. The market has a way of lulling investors to sleep and giving them a false sense of security with speculative stocks. We have seen remarkable, sometimes mind-boggling rallies in some tech stocks this year, and just when everyone thought high multiples were simply part of the “new normal”, the cards come crashing down all at once.
Disclosure: No relevant positions