For the most recent news on this story, read about how Thursday's market moves only add to the confusion surrounding markets.
Another day, another brutal set of losses for the markets. The major indices all plunged on Monday, with the tech sector once again leading the way. The three major indices plunged at the open, briefly rallied to a break-even point, then slide further until a rally around 2:30 helped them recover at least a fraction of their losses.
A look at the major ETFs helps paint a clearer picture of the day’s action. The SPDR S&P 500 Index ETF (SPY) fell just over 1 percent, the PowerShares QQQ (QQQ) fell just under 1 percent, the SPDR Dow Jones Industrial Average ETF (DIA) lost just under 1 percent, and the Vanguard Total Stock Market Index ETF (VTI) shed just under 1.25 percent.
Tech, Growth Stocks on the Chopping Block
Once again, the Nasdaq composite index took the day’s trading right on the chin, falling much farther than its counterparts. Prior to the aforementioned late-afternoon rally, losses had touched 1.8 percent. The Fidelity NASDAQ Composite Index ETF (ONEQ) was off by just under 1.25 percent going into the last hour of trading. On the whole, the Nasdaq Composite Index has lost over 4.5 percent of its value since last Thursday.
It’s the plunging Nasdaq that may give a bit more insight into what is actually happening in the markets. The markets have been waiting for an indication that dreary economic numbers from the last few months were really just a reflection of the polar freeze that hit most of the country in January and the harsh winter weather that preceded it. And, while Friday’s Labor Department Jobs Report indicated continued growth, it also didn’t provide the slam-dunk proof that things will be picking up briskly come spring.
As such, investors appear to be abandoning growth plays in droves as part of an overall shift towards a risk-off environment. Those investments favored during periods where the market is perceived as healthy and taking risks more defendable are getting hammered over the last two trading days.
Favored small-cap ETF the iShares Russell 2000 Index (IWM) is off over 1.5 percent, and it’s even uglier for its cousin the iShares Russell 2000 Growth Index ETF (IWO) , which is down almost 2 percent. And it becomes even clearer as one drills deeper into the smaller ETFs that track more specific segments.
Among the hardest hit was the growth stocks in the tech sector. While the sector as a whole took the day’s hit largely in stride when considering the rest of the markets (SPDR Technology Select Sector Fund (XLK) lost less than 0.75 percent and performed better than the broader S&P 500 on the day), this was likely because of flight to a number of larger tech stocks that may have appeared safe bets and may have attracted buyers fleeing riskier plays.
However, among those ETFs tracking smaller growth stocks, the results weren’t pretty. The biggest loser came in solar stocks, where the Guggenheim Solar ETF (TAN) shed just under 5.75 percent. Also down more than the markets as a whole were the Global X Social Media ETF (SOCL) , off just under 2.5 percent; the iShares S&P GTSI Softward Index Fund (IGV) , down over 1.25 percent; and the PowerShares Nasdaq Internet Portfolio ETF (PNQI) , off just under 2 percent.
Friday’s plunge hit biotech stocks particularly hard, right as the industry appeared to be bouncing back from losses and eschewing any talk of a biotech bubble. If anything, it only served to further muddy the water surrounding biotech, offering neither the bulls nor the bears a definitive argument.
And while Monday hardly settled the argument of the current industry trend as either “simple correction” or “bursting bubble,” but it did certainly give a firm head-nod towards the former.
Despite qualifying as clear growth plays on a day when it was small-cap growth plays that took it the hardest, the iShares Nasdaq Biotechnology Index ETF (IBB) posted gains just shy of 1 percent. Considering what appeared to be such a strong shift away from growth plays across the market, this had to be a ringing endorsement for biotech and a rejection of Friday’s big losses.
However, with the volatility this ETF has shown so far this year, it would clearly be a bit early to start thinking that biotech stocks are in the clear. Monday’s trading would clearly be an encouraging sign for biotech bulls, but not a definitive one.
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