Dow Jones Industrial Average Gets Hammered. Is the Tech Wreck Over? | Barron’s

Text size

The Dow has fallen 505 points, or 1.5%, while the

Nasdaq Composite

is off just 0.2%. The

S&P 500

has fallen 1%.

What’s gotten into investors? Judging by the news flow today, the narrative on inflation has shifted. A little inflation, spurred by economic growth, is good for economically sensitive value stocks, but puts pressure on growth stocks, which tend to make their money farther out in the future. That’s why the Nasdaq was taking the brunt of the recent selling. But if inflation rises too much, the Federal Reserve would be forced to raise interest rates more quickly, which would slow down the economy. That’s no good for stocks that depend on economic growth to spur their businesses. That narrative picked up steam today when former New York Fed President Bill Dudley said that the central bank might have to raise rates higher and faster, once it gets started.

But we might be overthinking things here. Remember, through Monday’s close, the Nasdaq had fallen 5.2% from its all-time high on April 26. And individual tech stocks had gotten hit even harder, with

Peloton

(PTON) off 25% in the past month alone, while

Etsy

(ETSY) has dropped 23%, and

Roku (ROKU)

down 16%.

Now, those kinds of stocks are rising, and that points to another possible reason: short covering. That’s how some traders are explaining it at least, writes Evercore ISI’s Dennis DeBusschere, who didn’t sound so sure of that himself.

For now, let’s just call it what it is—a break in the rotation out of tech into more cyclical stocks. Let’s see if it lasts more than one day.

Write to Ben Levisohn at Ben.Levisohn@barrons.com

This content was originally published here.

Leave a Reply

%d bloggers like this: