The S&P 500 on Friday ended a wild week nearly 1% lower, primarily due to a continued selloff in technology stocks. The technology sector has now slumped more than 7% in two weeks. Meanwhile, the rotation trade has continued, with the small caps, up more than 3%. Eyes now turn to the Federal Reserve’s latest monetary policy rate decision next week, where the central bank is expected to pave the way for a rate cut in September. For the week, the S&P 500 retreated 0.8%, while the Nasdaq slipped 2.1% and Dow climbed 0.8%.
Earnings season is not going well for Tech – On Tuesday, Google parent Alphabet saw weakness in its YouTube advertising revenue, knocking the Nasdaq 100 Index about 3.7% lower for its worst day since October 2022. Investors will continue to get a fresh look with Apple, Microsoft, Amazon and Meta all set to report next week. In the meantime, rotation of technology stocks into small caps and defensive sectors continues.
The rest of the earnings season will determine the direction of the market.
Future Wealth’s View
The major reason for the shift to safety is weakening consumer spending. At the same time, stockholders have suddenly grown skeptical that technology companies’ massive investments in artificial intelligence will pay off any time soon. Even a report Thursday showing stronger than expected US growth in the second quarter didn’t allay investor concerns about the path ahead.
Market corrections are common, occurring every 1.2 years on average since 1980, but recoveries are quick, averaging just 4 months. The history of crashes provides confidence in “staying the course” and “buying the dip”. Most recently, the recovery from the 2022 stock market decline took only 4 months.
As the saying goes – “All good things must come to an end.” But, savvy reallocation of capital could alleviate much of the pain.