Stock Market Rotation In Play As Investors Shun Tech Stocks

The bullish momentum around technology stocks is showing signs of exhaustion after a meteoric rise to record highs. For the first time in more than 100 years, the blue-Chip Dow Jones Industrial Average outperformed the tech-laden Nasdaq by 3.36%  signaling investors are increasingly taking profits or shunning tech stocks.

Tech Sell-Off

The Dow Jones outperformance comes hot on the heels of big tech companies pulling lower from record highs as focus shifted to other sectors in the stock market. Netflix Inc. (NASDAQ:NFLX) was the biggest loser in the past week, tumbling 10.2%., Inc. (NASDAQ:AMZN) also recorded a rare weekly loss, tumbling 7.4%, registering the worst weekly drop since December 28, 2019. Tesla Inc. (NASDAQ:TSLA), another big mover, was also down the past week.

As the tech-laden Nasdaq tumbled, the broader market S&P 500  index outperformed the Nasdaq by 2.32% marking its biggest outperformance since February 2016. The Russell 2000 index that tracks the performance of small-cap stocks was up 3.6% for the week.

While the tech sector has been the big driver of the equity market, it’s bullish momentum is slowly shifting to other categories and styles. The rotation comes amid growing concerns that most tech stocks have run ahead of fundamentals. For instance, most tech stocks have rallied on optimism that they are more resilient to the uncertainty triggered by the COVID-19 pandemic.

Stock Market Outlook

However, things are slowly changing as the U.S continues to register record numbers of infections just weeks after states reopened. The likes of Texas and California have already imposed COVID-19 restrictions a development likely to hurt the tech sector seen as one of the reasons why most stocks pulled lower.

The road ahead promises to be tough as companies face the perils triggered by the COVID-19 fallout. The week ahead promises to be a watershed moment that could set the pace on how stocks are likely to perform heading into year-end.

A  number of tech companies are poised to deliver their second-quarter financial results led by the likes of IBM (NYSE:IBM), Microsoft Corporation (NASDAQ:MSFT), Intel Corporation (NASDAQ:INTC). Tesla, which has outperformed the overall stock market, will be reporting on Wednesday.

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