More to come?

Sep 14, 2020 | Jay Zhang


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And just like that the script has flipped. As the tech giants recoiled, investors have been trying to figure out if this is a healthy correction, or is there more to it? We unpack the market’s move and what it means for portfolio strategy.

RBC DS-LIGHT HOUSE

The U.S. Technology sector selloff, which preceded the U.S. Labor Day holiday, spilled over into this week and tugged at other markets. The Tech sector corrected 11.4 percent over just four trading days, while the FANG+ Index—Facebook, Amazon, Apple, Netflix, and Alphabet’s Google along with other techoriented stocks—dropped 13.6 percent. Crude oil had its worst one-day price contraction since June, dragging the U.S. and Canadian Energy sectors down roughly five percent over the four-day period.


There was no clear catalyst for this profit-taking. Seasonality, with institutional investors adjusting portfolio positions after the summer, probably played a role. Heightened options activity was widely cited as well. And it may be that jitters that COVID-19 social-distancing measures could be enforced for longer also contributed to the pullback.


An initial V-shaped economic rebound is being achieved and should be reflected in strong U.S. Q3 GDP data. However, the tail risks for growth—both to the upside and downside—in Q4 and beyond are “enormous,” according to Tom Porcelli, chief U.S. economist at RBC Capital Markets, LLC. While global economic data remains sound, with most countries’ economic indicators consistent with an ongoing recovery, momentum seems to be plateauing in certain regions.

 

Market pulse
3 The Fed shifts to average inflation targeting
3 Bank of Canada sees protracted, uneven recovery
4 Does the UK government want a trade deal with the EU?
4 Asia markets fall on virus fears, Tech woes

 

 

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