It is far from a stock market that is in complete danger, but a day after stocks reached record highs it is now a market being drilled with some very valid fears.
The Dow went down almost 500 points in trading on Thursday as investors displayed concern that the decrease in 10-year Treasury yields might mean that economic slowdown will happen later this year. Driving that possibly dreaded macroeconomic lowering would be two causes, traders believe. First, the Delta strain of COVID-19 that is supposedly spreading across the world. And two, the Fed moving to lower its bond buys before the end of this year.
Hence, the newly shown concerns by investors about the ever-increasing valuations in many sectors of the equities market.
“If I do any number-crunching, I place the market at around 4% overvalued. The upside possibility between now and 2021’s end is 0.4%, which is a low figure. You never see these numbers exactly correctly, but it’s not a good number,” said Hugh Johnson Advisors chief investment officer Hugh Johnson. “So the valuation amount are such that to be frank — and this was even before what we saw today — they are not exciting.”
The sell-off so far is widespread.
All of the Dow’s is in red, except for defensive companies like Amgen, IBM, and Nike. The Nasdaq, S&P 500 and Russell 2000 were in the red too.
Coinbase is the top trending symbol on Yahoo right now, lowering by 4% as another fall back in crypto prices in the past day happens. Semiconductor companies also underperformed the market, with CPU giant AMD leading the pack at 4% lower.
“Stocks such as Apple, Nvidia, Microsoft, and Google have all become pretty overbought on a short-term time frame. The Nasdaq and XLK ETF have also become overbought,” said Matt Maley, a Miller Tabak Market Strategist in a recent research note.
“We are not announcing that long-term buyers should get out of these companies in an aggressive way. However, they should consider making some cash from these (and other) companies right now… so they have the money to use once a correction has happened.”
Author: Steven Sinclaire