Bloomberg News reports that the stock market rally during the first 6 months of 2023 was built on the backbone of the technology stocks. This has occurred amidst the investors’ move as they bet on a resilient US consumer and the hype surrounding artificial intelligence so that the shares keep soaring.
Has the support been sustained?
The support has dwindled all month as the Federal Reserve is determined to keep the rates above 5% into the next year. The flagging of consumer confidence has also led to a selloff that shoved the tech stocks into a correction. The broader S&P 500 Index plunged 1.5% Tuesday, dropping to the lowest since June 7.
Effects of selloff
The impact of selling has been mainly in the tech segment, where a bruising stretch has left the S&P 500 Information Technology Index down by more than 10% from the high in July. The gauge manifested the drop by 1% session out of the last five for the third time. In the meantime, the confidence amongst the consumers dropped to a 4-month low. the cracks in the economy’s main engine.
A hawkish Fed has not been the reason for agony for the stocks during most of the year. However, the market mood is turning sour since the officials have continued to signal that the rates might have to stay higher for a longer period compared to what the investors anticipate.
There is a fear that the central bank’s enthusiasm to curb inflation might break the economy. It combines with weary consumers, might leave the market susceptible to a reversal as there is the probability of a megacap tech giant meltdown.
Bloomberg News reports that Tuesday’s S&P 500 info tech index dropped 1.8%. This would widen the drop from a peak of July to 11% as the 10-year Treasury yields hover around the highest level since 2007. The S&P 500 index dropped 1.5%.
What is the market sentiment?
Sentiment took a hit as Neel Kashkari, the Fed President of Minneapolis, revealed that he supports one or more rate hikes in the current year if the economy proves to be stronger than anticipated. This comes a few hours after JP Morgan Chase & Co’s Jamie Dimon warned that the benchmark rate of the Fed hitting 7% is the worst-case scenario, coupled with stagflation continuing to be a possibility.
Despite a drop of 10 since July, the S&P 500 Information Technology Index remains atop 32% in 2023 compared to an 11% gain in the S&P 500. However, investors have doubts that the group will likely restore its trajectory that existed in the first half of the year anytime soon.
What about the NASDAQ 100 Index?
Citigroup Inc. strategists have revealed that tech-savvy NASDAQ 100 Index now holds a one-sided net short position of $8.1 billion, with all the long positions unwound.
