May 4 (Reuters) – Investors are digesting a sharp slide in stocks that\u2019s taken the Nasdaq Composite down more than 2.5% on Tuesday, despite solid earnings from some of the index\u2019s biggest constituents this season.<\/p>\n
Market participants gave a wide range of reasons for the move, from profit-taking near a market top to concerns that a stimulus-fueled rebound in U.S. growth will peak in coming months.<\/p>\n
The sell-off followed a pre-market move that had left traders perplexed.<\/p>\n
Treasury yields headed lower and the yield curve flattened on Tuesday as investors ditched riskier assets for a safer haven in government debt.<\/p>\n
Meanwhile, U.S. Treasury Secretary Janet Yellen, in taped remarks to a virtual event put on by The Atlantic, suggested that interest rates may need to rise to prevent the economy from overheating as more of President Joe Biden\u2019s economic investment programs come on line. The remarks were broadcast late Tuesday morning.<\/p>\n
ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER AT DAKOTA WEALTH IN FAIRFIELD, CONNECTICUT<\/p>\n
\u201cIt\u2019s concerns about valuations, that the market maybe being overextended, and add to that inflation prospects that were fanned by (Warren) Buffett over this past weekend.<\/p>\n
\u201c(Big tech earnings) reports were better than expected. The concern is more than the most recent earnings, it\u2019s what\u2019s going to happen in July and August and September. Is the stimulus by then going to be exhausted? What\u2019s next, what\u2019s going to drive the markets higher? When you look at the valuations it looks expensive.<\/p>\n
\u201cWe haven\u2019t seen this kind of growth in a long time. The market starts to think when we go out to the end of this year, what are the comps going to look like then?<\/p>\n
\u201cChips are the space everyone loves to hate right now, which is kind of mind-boggling because demand is only increasing. Supply is going to be tight, it\u2019s not overnight that people can build these factories.\u201d<\/p>\n
\u201cCompanies are saying they can\u2019t make cars, phones and printers because they don\u2019t have the chips, and it seems like that would be an opportunity. If Caterpillar said \u2018we can\u2019t make the machinery fast enough because demand is so high,\u2019 people would be scooping up Caterpillar.<\/p>\n
\u201cOne reason is the ISM manufacturing report. People are wondering if this is the end of the good times. The sheep are following each other.\u201d<\/p>\n
BINKY CHADHA, CHIEF GLOBAL STRATEGIST, DEUTSCHE BANK, AT A VIRTUAL ROUNDTABLE:<\/p>\n
\u201cEquity market performance is very strongly tied to indicators of cyclical macro growth such as ISM. That correlation is running very strong at 75% or so between measures of equity performance and what ISMs are doing. The second point is that historically, growth or growth rates tend to peak pretty soon after recovery begins. So the ISM tends to peak a year or so after recovery begins and that\u2019s exactly the point where we are now. The manufacturing ISM which just printed looks like an inverted V. Lastly, when growth as measured by the ISM peaks, the market has tended to sell off historically.<\/p>\n
\u201cIn a third of cases, when growth reached a peak then went sideways at elevated levels we saw a 6% selloff.<\/p>\n
\u201cThis is the first serious challenge to equities and that\u2019s where we are and that\u2019s what we are looking for.\u201d<\/p>\n
ART HOGAN, CHIEF MARKET STRATEGIST AT NATIONAL SECURITIES IN NEW YORK:<\/p>\n
\u201cThe market\u2019s reaction to extraordinarily good news on the earnings front has been equal and opposite meaning great earnings across the board and companies are getting sold.<\/p>\n
\u201cOftentimes that happens when you enter an earnings season with stocks priced to perfection. We entered earnings season at or near all-time highs and across the board whether it was banks the first week or the tech companies last week and a broad spectrum of other sectors this week stocks are just not being rewarded for outstanding earnings and revenue and raising guidance. We\u2019re just in a short term profit taking mode and that picked up some volatility this morning.\u201d<\/p>\n
\u201cNo trigger… it\u2019s a combination of a sell-off on the winners of the past months… with the month of May and a \u2018nervous\u2019 positioning.\u201d<\/p>\n
\u201cThe habit of making fresh record highs will be a lot harder in the coming months as everyone braces for some of President Biden\u2019s tax plan to get pushed through and for surging soft commodities pricing and chip shortages to drive inflationary concerns.<\/p>\n
\u201cThe last couple of weeks have been filled with countless companies from Procter & Gamble, Coca-Cola, Caterpillar, and even Berkshire Hathaway, talking about persistent rising pricing pressures.<\/p>\n
\u201cWall Street won\u2019t find out if the Fed is making a policy mistake until several months down the road and that is making some traders nervous. After Friday\u2019s nonfarm payroll report, investors will see a clear path for the U.S. economy to recover the remaining lost jobs due to COVID and noticeably hear more companies talk about raising prices.\u201d<\/p>\n