Tech Stocks Hit More Turbulence Than the Rest of the Market

  • Rotation into banks sends the Nasdaq 100 below 50-day average
  • Daily swings in the tech megacaps widest vs. S&P since 2014

Oppenheimer's Wald Sees Signs the Bullish Cycle Is Intact

Technology stocks’ alienation from the rest of the market worsened Thursday as another violent industry rotation left the Nasdaq 100 with a loss that was twice as big as the S&P 500’s.

With banks clinging to gains after unleashing a torrent of buybacks following Federal Reserve stress tests, money was draining from computer and internet companies, pushing shares from Tesla Inc. to Micron Technology Inc. and Nvidia Corp. down 3 percent or more.

Selling was brisk enough to send the Nasdaq 100 Index down 2.2 percent to 5,625.52 as of 1:18 p.m. New York time, leaving it at risk of closing below its 50-day moving average for the second time in seven months. Volatility has come crashing back to the tech gauge. Its mean swing has been 0.57 percent over the last 50 days, the widest relative to the S&P 500 in three years.

“Everyone talks about the VIX, but there are undercurrents of significant volatility in the market,” Joe Sowin, head of global equity trading at Highland Capital Management LP, said by phone. “There’s a lot more volatility in tech this month and that’s in part due to stretched P/Es, positioning and breadth that isn’t good.”

The VIX wasn’t its usual docile self, either, on Thursday. The measure jumped 3.5 points to 13.56, the highest since mid-May. Losses in consumer and health-care stocks sent the S&P 500 down 1.1 percent to 2,412.05.

Other measures of tech turbulence tell a similar story. The CBOE NDX Volatility Index has averaged 15.1 in June and has repeatedly touched levels this month that represent its biggest gap to S&P 500 implied volatility, or the VIX, since the financial crisis.

Excess volatility in technology megacaps is partly a function of how fast they have run up. While the S&P 500 has tripled since markets bottomed in March 2009, gains in the Nasdaq 100 are approaching fivefold. After rising as much as 21 percent this year, valuations in the gauge sit 30 percent above their bull market average.

As was the case on June 9 when tech shares dropped 2.7 percent, the biggest laggards in the group Thursday were semiconductor stocks. KLA-Tencor Corp., Advanced Micro Devices, and Applied Materials Inc. weighed the most, with losses of more than 4 percent.

To Peter Cecchini, senior managing director at Cantor Fitzgerald in New York, that could mean that investors are second-guessing expectations for economic growth.

“A lot of these names are cyclical tech -- when you’re looking at economic slowdowns the semiconductors always get whacked first,” he said by phone. “Look at the durable goods data, it was a mess. Maybe these cyclical names are telling us something.”

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