Techfrossa dämpar börsen: ”För dyrt för att ignorera”

US stocks fell for a fourth day as traders rotated out of technology high-flyers into less risky sectors after the minutes of the last Federal Reserve meeting showed officials saw inflations risks outweighing concern over the labor market.

The S&P 500 Index closed 0.2% lower, with the tech and consumer-discretionary sectors leading declines. The tech-heavy Nasdaq 100 Index declined 0.6%.

The Dow Jones Industrial Average, considered a gauge of the old economy, ended little changed near a record high.

The signal from Fed officials cast doubt on the extent of Fed interest-rate cuts that may be ahead. The minutes arrived two days before Chair Jerome Powell will deliver a speech in Jackson Hole, Wyoming, which investors will watch to see if he signals that a rate cut as soon as next month is likely, particularly amid signs the labor market is cooling.

“The minutes read a bit more hawkish than anticipated given that the bulk of Fed officials sound more concerned about upside inflation risks than downside employment ones,” Vital Knowledge founder Adam Crisafulli wrote in a note to clients.

The minutes briefly pushed indexes lower as traders had been selling larger information technology names.

“We were due for some kind of correction in tech. You can’t have this many days and months of people chasing the same select group of stocks,” said Chris Bertelsen, chief investment officer at Aviance Capital Management, adding that tech “shouldn’t be disregarded” and investors should be selective.

Megacap technology companies have been leading the stock market higher for months, thanks to growing demand for artificial intelligence products and cloud-computing services. Some strategists now warn that the extra-heavy weighting of tech giants could turn the rotation out of the sector into a broader rout. 

“If those major averages begin to decline, investors will not keep ‘rotating’ their money into other groups,” said Matt Maley, chief market strategist at Miller Tabak + Co LLC. Rather than a rotation, he said investors would “start to pull money out of the stock market.”

Around $660 billion has been erased from the S&P 500 in the span of four days as the index lost about 1.1% during that time. An equal-weighted version of the S&P 500 Index, which makes no distinction between the market value of a behemoth like Amazon.com Inc. and relative minnow like Axon Enterprise Inc., is up less than 0.1%.

Investors are ditching technology stocks and turning to other sectors for returns amid uncertainty about whether the lofty valuations of megacap high-flyers have become harder to justify. The tech-heavy S&P 500 is trading at 24 times projected 12-month profits, some 4.6 points higher than its equal-weighed counterpart, compared with an average of 0.8 in the past 15 years.

“The valuation divergence has become too large to ignore,” said Michael O’Rourke, chief market strategist at Jonestrading. “So one can remain invested in equities, but buy the S&P 500 Equal Weight at 18.3x earnings, the S&P 400 at 17.3x earnings, or the S&P 600 at 16.5x earnings.”

Across Wall Street, investors are raising concerns about rich valuations. 

“Stocks are expensive relative to what I call fundamentals or you might call reality,” Howard Marks, co-chairman of Oaktree Capital Management, said in an interview on Bloomberg TV on Wednesday. 

“We’ve been trimming our tech holdings some; we’ve trimmed Microsoft, Oracle, Broadcom, Nvidia, and have added to housing names in the past few months,” said Nancy Tengler, CEO & CIO at Laffer Tengler Investments. “But even though there’s been something of a pivot, we absolutely do not think the tech trade is over.

Wednesday’s move comes amid a flurry of retail earnings report, which painted a mixed picture for the consumer sector. Target missed expectations while TJ Maxx parent TJX Cos. raised its full-year earnings guidance. Better-than-expected margins helped Lowe’s Cos. beat estimates for the second quarter. Elsewhere in the consumer sector, Guess? Inc. shares soared after it agreed to be taken private for $1.4 billion.

“Consumer spending is under downward pressure from slowing job growth, student loan payments restarting and deportations lowering the number of consumers,” Torsten Slok, Apollo Management’s chief economist, said in a note to clients Wednesday.

--With assistance from Matt Turner and Ryan Vlastelica.

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