U.S. stocks once again "ebbed" on Monday, and the three major stock indexes all fell. Among them, the S&P 500 index hit a two-and-a-half-month low. What's more striking is that the top five technology stocks (FAANG) last year were very weak and became a drag on the broader market.
The three major US stock indexes closed down on Monday. The Nasdaq closed down 2.14% to 14,255.50 points, the lowest since June; the S&P 500 index fell 1.3% to 4,300.46 points, the lowest since July 19; Dow fell 0.94% to 34,002.92 points.
In fact, there were some positive news in the U.S. stock market on Monday. For example, crude oil prices rose to a new high since 2014; after the US pharmaceutical company and Merck , the Israeli biotechnology company RedHill Biopharma Ltd. It also announced the good clinical data of its oral new crown drug, which made everyone see the hope of a rapid improvement in the anti-epidemic situation.
However, under the weak trend of the five technology stocks Facebook, Apple, Amazon , Netflix and Google parent company Alphabet , the above good news has also become insignificant. The S&P 500 not only erased the results of last Friday's rebound, but also fell below the 100-day moving average level, which was an important technical support level for the broader market last year.
On Monday, Apple closed down 2.46%, refreshing its closing low since July 1 to $139.14. The stock fell 11% from the high point set on September 7; Facebook closed down 4.89% for November 2020 The biggest drop since; Amazon closed down 2.85%; Alphabet A closed down 2.11%; Netflix closed down 1.60%.
Goldman Sachs and Bloomberg jointly compiled data shows that these five stocks account for 22% of the S&P 500 index.Although it is down from last year's peak, the influence of FAANG on the S&P 500 is still unmatched by other sectors.
For a simple comparison, if the five stocks of FAANG are removed from the S&P 500 index, the S&P 500's decline on Monday can be reduced by nearly half.
double-edged sword
"The dominance of these technology companies (in the broad-cap index) is a double-edged sword," said Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors. During the entire epidemic, these stocks have undertaken most of the (rising) burden, but as the leading gainers change, these stocks may become a drag on the market."
During the global epidemic last year, economic stagnation and strict home quarantine measures , The explosive growth of demand for online shopping, online work and entertainment has created a number of bull stocks. These five major technology stocks are the most typical representatives, and the side effect is high valuations. However, with the recovery of various industries after the restart of the economy, funds have been diverted; more importantly, the long-term interest rate of U.S. Treasury has rebounded from the trough, continuously pouring cold water on the "false fire" of high-value technology stocks.
To put it simply, interest rates are inversely proportional to valuations, so once interest rates enter an upward channel, it will suppress high valuation stocks to a certain extent. The US 10-year Treasury bond yield was reported at 1.484% on Monday and hit 1.56% last Monday, the highest since June. Many analysts predict that the 10-year U.S. Treasury yield will rise to 1.75% or even 2% before the end of the year.
Since the peak in September, these five large technology stocks, except for Netflix, have shown a continuous correction trend, and their combined market value has shrunk by nearly $1 trillion.
Phased withdrawal
Many major international investment banks have recently warned several times, suggesting investors to phase out technology stocks and growth stocks. Among them, Morgan Stanley may be the most pessimistic.
Morgan Stanley Chief Investment Officer Mike Wilson (Mike Wilson) not only has repeatedly expected that the U.S. stock market may have a correction of up to 20% in the near future,It also recommends defensive operations, focusing on healthcare stocks, consumer staples and financial stocks.
According to his analysis, large technology stocks face two major risks, that is, performance growth slowdown and monetary policy tightening.
"For many investors, whether the current pullback in technology stocks has completely digested these factors, our answer is simple: not yet." His latest view on Sunday is still very clear.
According to Bloomberg statistics, the leading value of analysts’ expectations for the growth rate of the five major technology stocks in the third quarter and the overall growth rate of large-cap stocks has fallen to 4 percentage points, which reached 33 percentage points last year; The growth rate of technology stocks in this quarter may no longer be ahead of other sectors.
FAANG's decline has a more intuitive impact on the broader market index, especially the index with a relatively high weight, such as the Nasdaq 100 index, which accounts for about 40% of the weight.
Fairlead Strategies founder and managing partner Katie Stockton (Katie Stockton) told the media that the "momentum is clearly declining" driven by large technology stocks. "Of course, when they retreat, the S&P 500 index or Nasdaq 100 index will find it difficult to get out of their own way."
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