Enis’s Macro Wrap – The End of 4 Year Tech Outperformance?

by Enis October 10, 2012 7:31 am • Commentary

The stocks in the S&P top 100 that declined more than 2.5% yesterday were:  INTC, AMZN, EMC, EBAY, and DTV.  All major tech stocks with the exception of DTV.  The Nasdaq 100 index made a 2 month low yesterday, trading at the lowest level since early August.  And of course, AAPL headlines galore as the stock declined more than 10% from its Sept peak to yesterday’s morning low of $623.55.

Tech has been THE leader of this 3.5 year bull market.  Look no further than the charts of the leaders, like AAPL, IBM, GOOG, or AMZN.  So it’s interesting that we’ve seen tech perform so poorly after QE3 was announced.  Increased technology use in our lives has certainly been a long-term secular trend.  But as a trade or investment, long tech might have too many followers on the bus.

Here is an interesting chart from Michael Panzer that I saw posted on SlopeofHope.com:



Even ignoring all the bells and whistles he’s put on the chart, I think the salient point is that the Nasdaq 100 has not outperformed the S&P 500 since mid-2011.  The three sectors that have shown outperformance since mid-2011?  Health care, consumer staples, and consumer discretionary.  Of those 3, I would only trust large-cap health care on a valuation basis here, with consumer stocks looking quite rich as well.

If technology is a crowded trade, look for the shakeout process to take months, not weeks.  The reaction to earnings season over the next few weeks should provide a good indication of how many incremental buyers are left on the playing field.

Markets overnight:

  • Asia followed the U.S. and Europe lower, with Japan and Korea the weakest markets, down more than 1.5.%.  China was the only market higher, up 0.25%.
  • Europe has been lower all session, and SPX futures have been down most of the session as well, though they are now close to unchanged.
  • The dollar is actually weaker vs. most crosses, but commodities are mostly lower, a rare combination.  Treasury bonds are slightly lower as well.
  • The Fed’s Beige Book is released at 2pm today.
  • Another essential profit warning, as CMI cut its revenue and earnings forecasts after the close, dropping almost 5%.  I will take off my short call spread after the open.  The negative pre-announcements continue to significantly outpace positives, as highlighted in my CotD from Monday