Last night, US technology stocks plunged, and cryptocurrencies have continued to fall. I think many people are wondering what is going on, and will this continue?
After the release of CPI data last night, some large technology stocks were gradually sold off. They are the main force behind the stock market's rise this year, including Apple, Tesla and Apple. In the end, the Nasdaq closed down 2%, the biggest drop in a long time. What happened?
I think what we are seeing is a rotation. Long tech stocks have always been a crowded trade, and so have cryptocurrencies. Everyone on Wall Street has bought these companies, and they have basically been pushing up the Nasdaq all year long, and everyone is holding these stocks. And yesterday's CPI miss almost guarantees a rate cut this year, and the probability of September has increased, so some people are starting to move to the most interest rate sensitive sectors, small cap stocks such as the Russell 2000 index. The big companies where everyone is making money are taking profits and rotating into the Russell, which has previously performed poorly. Because the market is so confident about the rate cut, the interest rate sensitive sectors benefited, so the Russell 200 index closed up more than 3%. So basically this rotation trend. Because the previous trade was too crowded, once one or two large investment funds start rotating, others see it and join in.
The next question is will this continue? I think it is possible in the short term, but I don't think it will be a major development unless small-cap stocks start to generate better earnings. Ultimately, stocks such as women's big have better revenue capabilities than small-cap stocks, and some traders will continue to rotate, but ultimately small-cap stocks need to use better revenue to justify higher stock prices.
Finally, I informed my internal colleagues of this risk long before the CPI was announced, and successfully achieved long and short positions based on our internal model. Let me show you a 1-second top-escape operation.
