Daily Brief: Maybe That Rotation Away From Tech Stocks Won’t Happen After All…

Daily Brief: Maybe That Rotation Away From Tech Stocks Won’t Happen After All…

almost 3 years ago3 mins

The Nasdaq Composite index fell into a technical “correction” on Monday, but investors had glossed over the hiccup just a day later.

What does this mean?

The tech-heavy Nasdaq rose 11% from the start of the year to hit its highest level ever by mid-February. But after weeks of poor performance, the index finally collapsed more than 10% from that peak on Monday – sending it into official correction territory. There’s nothing special about that in and of itself: it’d be far more worrying if there’d been a 20% drop, which would throw the Nasdaq into a “bear market”. But it does say a lot about how investors are behaving: the collapse was partly down to their long-anticipated rotation away from high-growth tech stocks in favor of economically sensitive “cyclical” and cheap-looking “value” stocks.

US tech stocks snap higher after sharp falls

Why should I care?

For markets: Investors are buying the dip.

With the world focused on getting back to normal this year, companies whose earnings are closely tied to economic growth – think carmakers and construction firms – stand to benefit the most. Meanwhile, those whose earnings continue to grow no matter what – like the tech giants – will probably benefit the least. Still, investors were quick to “buy the dip” after the Nasdaq’s correction on Tuesday, initially sending the index straight back up 4% – so maybe the rotation analysts have been expecting in the States isn’t as straightforward as they thought.

Zooming out: The rotation is a-go in Asia.

At least the rotation is playing out exactly as predicted in Singapore: the country’s key stock market index is up 9% this year, flipping it from Asia’s worst performer in 2020 to its best so far this year. That’s probably because the index’s cyclical and value stocks make up 80% of its size – and they have a lot of room to rise after falling 12% last year.

Singapore rising

Keep reading for our next story...

The OECD Upped Its Forecast For Global Economic Growth

OECD image

Turns out America’s economic support package is already going a long way: the OECD raised its forecasts for global economic growth on Tuesday.

What does this mean?

Now that the US has greenlit a $1.9 trillion economic support plan and the vaccine rollout is in full swing across the world, the OECD thinks the global economy will grow 5.6% this year compared to last – up from its 4.2% forecast in November. The spending plan has boosted the OECD’s estimate for the US’s predicted growth too: up from 3.2% to 6.5% – a jump that single-handedly lifts global economic growth by a full percentage point. As for the rest of the world, the OECD’s feeling more positive about the UK, the eurozone, and Japan as well, along with emerging markets Brazil and Mexico. But China, for once, is coming up short: the OECD slightly lowered its growth estimate.

OECD boosts growth outlook around the world

Why should I care?

The bigger picture: America makes the world go round.

For all the talk of China’s rising dominance, the US is still the world’s biggest economy – meaning it has an outsized impact on the rest of the world. Case in point: the OECD estimated that higher US economic growth will add about one percentage point to Canadian economic growth, as well as about half a percentage point to the eurozone’s, the UK’s, Japan’s, and China’s.

Impact of Biden’s stimulus plan on 2021 growth outlook

For markets: How to spend it: US edition.

According to investment bank Jefferies, Americans who receive $1,400 checks as part of the US economic support plan are likely to spend them on clothing, home improvement, outdoor dining, and travel. So once that cash starts landing in people’s accounts, shares of American retailers, restaurants, and airlines could see a boost of their own. Then again, a third of wealthier Bloomberg survey respondents said they’d put their cash into savings, so maybe you’ll want to hold fire on that...

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