Markets may be discovering the answer to one of the main questions that have been bothering them for several weeks or even months: what will be the trigger that will put an end to the exuberant valuation of certain technology companies? Obviously, it could be the rise in bond yields. As usual, one should avoid drawing hasty conclusions, but this is what is beginning to take shape, with a still marked rotation in favor of the unloved companies of recent years.
Yesterday, the Nasdaq 100 lost 2.9%, the S&P 500 about 1.3% and the Dow Jones 0.4%. It was technology stocks that pulled the trio down. Apple, Microsoft, Amazon.com, Alphabet and Tesla have lost between 2.5% and 5%. Facebook a little less. According to an in-house score realized this morning, these stocks weigh 44% of the Nasdaq 100, but also 22.5% of the S&P500. But they represent only 7.5% of the Dow Jones, because only Apple and Microsoft are part of it and the index uses a somewhat archaic calculation method based on prices and not on capitalization. In other words, the more the indices are weighted in technology stocks, the more they are currently correcting, i.e. the opposite scenario of what has happened in recent years. This is also what has allowed European markets, which are less rich in players in the digital economy, to behave better lately.
However, apart from Tesla and to a lesser extent Amazon.com, the valuations are not that delusional in terms of the fundamentals of tech giants. Apple's PER 2021, for example, is 27 and not 127. There are many titles in the technology sector that are much more generously valued while their prospects are much more uncertain. They are also widely sanctioned. For the time being, investors are cutting with a sword.
In the meantime, the discounted stocks compartment continued to perform well, as financials and energy stocks, mainly oil companies, closed higher again yesterday. Since January 1, these securities have significantly outperformed the rest of the stock market in terms of performance and have once again attracted institutional investors.
To sum up the current period roughly: despite the short-term turmoil, the vast majority of stock market indices are on a positive track in 2021, the economic outlook is good and the end of lockdowns is looming.
Today on the agenda, we have the Euro-zone unemployment rate and retail sales, and in the U.S., the Challenger study on layoffs, weekly unemployment registrations and durable goods orders.