After a strong surge in June and July, the S&P 500 index has experienced a significant decline in August, with tech stocks being hit particularly hard, as fears of rising interest rates and a slowdown in China weigh on the market.
The S&P 500 and other major indices are showing bearish signals, with potential for a significant drop, while the dollar is expected to maintain its upward trajectory and strong economic data could lead to a breakout in interest rates. Additionally, Meta's stock is on a downward trend and the KBW NASDAQ BANK Index is at risk of further decline.
Wall Street's main indexes rose as a decline in Treasury yields boosted megacap growth stocks ahead of key inflation and jobs data, providing more insight into the Federal Reserve's interest rate trajectory.
Buyers returned to the stock market after positive data on the U.S. jobs market suggested that wage inflation may decrease further, with Microsoft stock showing promising signs in forming a new base, while China's PDD Holdings experienced a significant gain amid hopes of government measures to stimulate economic activity. Additionally, megacap tech stocks led a broad rally in the stock market, with the Nasdaq composite rising 1.7%, and there is anticipation of a potential increase in the overnight fed funds rate and a rise in bond yields.
The top 25 stocks in the S&P 500 outperformed the index in the 35th week of 2023, with tech stocks leading the way, suggesting a return of bull markets and a decrease in recessionary fears; however, market health, the balance between developed and emerging markets, and investor behavior still need to be addressed. Additionally, market correlations have dropped since COVID, and on "down-market" days, correlations are 5% higher than on "up-market" days. Market correlations also decrease during upward economic cycles. Retail investors are showing a preference for dividend-driven investing and investing in AI stocks. The global subsidies race is impacting valuations in tech and leading to supply chain inefficiencies. As a result, there are opportunities for diversification and investment in a wide variety of equities and bonds.
The stock market sinks as a tech selloff occurs due to investors' fear of more Fed rate hikes, with Apple, Tesla, and Nvidia all experiencing significant declines.
The global head of fixed income research at HSBC, Steven Major, argues that despite recent market volatility, the overall trend is still one of "lower for longer" interest rates and bond yields, due to factors such as debt overhang, aging populations, rising inequality, and technological advances that have not yet proven to be productivity game-changers.
Big Tech stocks, driven by the promise of artificial intelligence, are experiencing a slowdown in their massive rally due to the Federal Reserve's indication of a restrictive monetary stance, causing declines in some tech giants' stock prices.
