Thursday Trading: Tech tanks bigly, crushing market averages

Dow Jones Industrials down triple digits due to continuing Tech Wreck. But financials, healthcare, materials all manage to rally.

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Today we offer you a lazy American black bear, a good symbol for today's trading: down hard with a potential for nastiness. (Image via Wikipedia entry on bears, CC 2.0 license)

WASHINGTON, June 29, 2017 – Tech stocks have led market rallies, particularly after the post-November 8 Trump Rally, which lasted well into 2017 and still showed some signs of life even as market bullishness began to taper off this past March. Even so, the market’s tone has remained fitfully but nervously positive.

But Thursday, after a nearly month-long battering, tech stocks, which tried to recover a bit on Wednesday, were battered yet again, taking the Dow down 167.58 points, hitting the S&P 500 for a loss of 20.99 points, and pounding the tech-heavy NASDAQ for a negative 90.06, a whopping 1.44 percent loss on the day.


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It’s hard to say exactly why the long-beloved tech sector, prized for its recent track record of growth, is taking such a beating lately. But it may simply be due to the fact that so many traders and investors were crowding into this sector that the hedgies and HFTs figured techs were overstuffed and overbought making it time to sell and short with abandon.


That’s what’s been going on for some time now. But the selling intensified as June draws to a close, and today’s tech smackdown was just another chapter of bearishness, likely made much worse due to a massive selloff of yesterday’s growth darlings.

Perhaps this year’s June Swoon was simply due to a climactic tech selloff by funds engaged in the most vicious kind of portfolio “window dressing,” which required dumping all traces of tainted tech stocks before the end of 2017’s 2nd Quarter, which happens tomorrow, June 30. This way, fund managers can legally (but deceptively) brag in their next quarterly reports to shareholders that they aren’t carrying any of that tech garbage.

In many cases, this bragging is true only on a technicality, particularly if the usual suspects dumped money-losing techs today, which may have been a tech selling climax. But they don’t have to tell you when in Q2 they actually did their tech dump.

Tech stocks often prove to be cyclic, nose-diving in Q1 and 2, then picking up in Q3 and running like cheetahs right into a year-end Santa Claus Rally. But this year, we’ll just have to wait and see. We figure the techs will come back as typically happens, perhaps giving us a terrific buying opportunity in the sector from now until sometime later this summer. But maybe not. We need to see the smoke clear from today’s action before we take a guess.

On the other hand, market sectors tend to rotate in and out of favor in normal trading times, such as we haven’t seen pretty much since the Great Recession achieved liftoff. Maybe we’re getting back to normalcy. If so, however, it didn’t feel too good today.

Regarding sector rotation, the financial sector, which rallied post-Election 2016 in anticipation of a Trump-led stimulus, slowly backed off into negative territory again as March 2017 approached. This was largely due, we think, to fears that a beleaguered President Trump, assailed 24/7 by fake MSM “Russia Scandal” promoted everywhere, wouldn’t be able to push through the tax cuts and Dodd-Frank trimming he’d promised voters last fall, along with Obamacare repeal and replace.

While Trump’s Deep State political troubles have indeed been vexatious, however, it’s the GOP majorities on Capitol Hill that bear much of the blame for failing to pass key legislation, given the constant bickering between not only so-called Republican “moderates” and “conservatives.”

This internal party asininity is made even more complicated by the seemingly habitual #NeverTrump proclivities of assorted Congresspeople. This, in turn, is making it well-nigh impossible to achieve a slim majority vote on any of Trump’s key campaign promises. Not for nothing do they call the Republicans the Stupid Party.

On the other hand, the Democrats are in many ways even worse, which is why they remain the Evil Party. Like snotty children, they blame everyone but themselves for Trump’s seemingly impossible victory last fall, and haven’t done one, single, noticeably positive thing on the Hill since the new Congress and the new President took their place.

It wasn’t so long ago that you could cut a few deals here and there with some players on the other side of the aisle. But these days, due to an infantile inability to accept that an electoral majority of Americans no longer like their socialistic habits, the Democrats have become what they often called Republicans back in the day: The Party of No.

In the whole process, legislators have remained stalemated on they key issues of Obamacare Repeal and Replace and corporate and individual Tax Reform. Without breakthroughs in these areas, business has begun to lose confidence that things will improve for them anytime soon. Meanwhile, Obamacare continues to implode on its own, a rolling disaster that’s being blamed by cheeky Democrats on the Republicans, who, of course, never contributed a single vote to America’s now badly imploding and disastrously sloppy try at socialized medicine.

It’s a mess for sure, and it’s begun to erode the business animal spirits that were vigorously on display late in 2016 and early in 2017. Since no one knows how it will turn out, HFTs, funds, traders and investors alike are simply indulging in a prolonged edition of Sell in May Syndrome, something that was vastly on display today.

Despite all the gloom and doom, however, we should get back to those financial stocks, which did manage to rally big time after nearly all of them passed the latest Fed “stress tests” with flying colors. This very non-fake news finally leading many major banks to announce substantial dividend hikes and share buybacks.

Beleaguered but patient investors in this sector may now look forward to these banks returning a pretty impressive dollop of capital back to long-suffering investors in that sector. Nearly all publicly traded banks traded up vigorously on the news, although the closing selloff frenzy today pushed financials off their highs for the day somewhat.

Oil made a feeble but positive move upward for the second day in a row today, helping that sector a little, while robust trading in copper helped material stocks in general, particularly copper miners themselves.

Finally, despite what looks at the moment like zero progress on “repealing and replacing” Obamacare, healthcare stocks continued their recent rally. So, while techs are down, three other sectors are up, so maybe modified optimism is still warranted. It’s just that maybe this summer, bulls should be advised to wear Teflon vests.

Perhaps we’re just experiencing some sector rotation for now into sectors most investors have hated for a long time. If so, that’s a good thing. If not, and if Mr. Market is trying to tell us he’s way overbought – as CNBC’s usual bearish pundits have been insisting since at least 1971 – then things could get nastier on Wall Street from Friday trading action and well into July.

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