About that rotation story — yesterday’s trading proved to be a heck of a lot more broad-based risk-off. The small-cap focused Russell 2000 index, which has been on a tear of late, sank 2%, whilst the Nasdaq fell 0.7% and the S&P 500 declined 0.78% with all but one sector in the red.
The narrative is that the rotation out of mega-cap tech stocks continued alongside some profit-taking from the small-caps. Nasdaq down more than 2% this week, while the Russell 2000 index is up more than 2%.
Small-cap stocks are shares of public companies with total market value (or market capitalization) in the range of about $250 million to $2 billion.
European stock markets declined early Friday to cement losses for the week in a broad move lower. Airlines fell around 2-3% on mass IT outages that are also affecting some media and banks; stocks in these sectors were also lower in a broad selloff.
Trump’s speech at the RNC pushed economic nationalism to the fore – tariffs, tax cuts etc. It was nothing particularly new. Stocks in Hong Kong and Taiwan led losses in Asia overnight — TSMC shares are down despite decent earnings.
Heightened rhetoric around China, trade and chip tech raises the chances of more volatility and swings in some sectors like semiconductors.
Evercore ISA warned of stormy weather ahead, saying there is room for “tactical downside in the weeks to come as we enter the gauntlet of the weakest two months and only consecutive losing months for equities, with markets at all-time highs”.
Geopolitical risk premia are rising even if investors are leaning towards the thinking that a Trump win in November could be bullish for stocks.
We shall see if Biden makes the August Democrat Convention. August 4th is the deadline for Ohio. There are increasing rumors that he is close to pulling out of the presidential race.
Meanwhile, the European Central Bank left rates on hold — as expected — and ditched forward guidance to adopt a fully meeting-by-meeting approach. September is now anyone’s guess — the data has not provided a really clear direction and it’s not your usual easing cycle.
The dollar bounced quite a lot off a 4-month low, with Treasury yields slightly firmer and gold seeing some big profit-taking after hitting an all-time high.
Programming note: I will be back on August 19th. Have a lovely summer.
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