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“A good first impression can work wonders.” – J.K. Rowling
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Markets are getting a bit of a reality check this morning as Nasdaq futures are down over 1%, while S&P 500 futures look at a more modest decline of 0.4%. The weakness comes despite crude oil prices trading down over 3% whle the 10-year yield trades down to 4.45%. Gold prices are rallying as investors take more of a risk-off approach, and Bitcoin is down another 3% to less than $64K.
Asian stocks were lower across the board overnight, following the lead of US equities on Wednesday and the follow-through into the overnight session. The Nikkei was down 1.4%, while South Korea fell 1.8%. European stocks have much less exposure to Technology and are therefore experiencing a mixed picture rather than trading broadly lower. The STOXX is down 0.2% with the UK leading the way lower (-0.7%). On the upside, France is up 0.8% while Spain and Germany are both up over 0.5%.
In the US today, along with jobless claims at 8:30, we also got Non-Farm Productivity and Unit Labor Costs. Initial claims were higher than expected, while Non Farm Productivity and Unit Labor costs both came in light. Later today, we’ll also hear from a few Fed speakers.
The news of Alphabet’s (GOOGL) equity offering earlier this week reinforced the idea that AI investment will remain strong for quarters to come, but equity prices have rallied sharply and reflected much of that, so all it takes is one company to at least temporarily wreck the party. Yesterday, the party pooper was Broadcom (AVGO). While the company reported better than expected EPS, inline revenues, and raised guidance, the magnitude of the beats and the guidance raise wasn’t enough given the run in the stock over the last year.
As a result, the stock is trading down 15% in the pre-market, shaving more than $300 billion off its market cap and dragging the rest of the Technology sector down with it. The S&P 500 Technology sector is on pace to gap down over 2% at the open, while Nasdaq 100 futures are down 1.4%. If you own a tech stock that was up a lot over the last few days, you’re looking at some relatively steep losses this morning.
If current levels hold until the open, today will be the Nasdaq 100 ETF’s (QQQ) 9th downside gap of at least 1% this year and the 533rd since its inception in 1999. In other words, these types of declines are relatively common.
What makes this morning’s decline somewhat more unique is that it comes after QQQ traded at an all-time high on an intraday yesterday. Since the ETF’s inception in 1999, there have only been fifteen other occurrences when it gapped down 1%+ the day after hitting an all-time high. Ironically, though, this is the second occurrence in less than a month. Less than three weeks ago, QQQ gapped down 1.34% the day after hitting an all-time high the day before.
The chart below shows each of those occurrences going back to 1999. The first occurrence was in March 2000, coinciding with QQQ’s peak from the dot-com bubble. From there, QQQ fell more than 50% over the next year and ultimately declined more than 80%. First impressions tend to linger, so investors around at the time have nightmares about that type of setup. Besides the March 2000 occurrence, most of the other times that we saw QQQ gap down 1%+ after hitting an all-time high occurred in the middle of longer-term bull markets rather than at the end.
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