Investing.com | Jun 13, 2017 06:56AM ET
by Pinchas Cohenh3 Key Events/h3
After the biggest two-day global tech sell-off in more than 6-months, Asia-Pacific equities have started to rise, in what may leave investors questioning if this is a climb back to the top or a break in the fall to a lower bottom.
The tech sector was the market leader that paved the way for global equities to hit repeated record levels this year. Investors felt untouchable after disregarding last Thursday’s three high-risk events; the Comey testimony, UK elections and the ECB's policy decisions. The sudden sell-off in high-flying, mega-cap techs had investors considering whether this rapid decline would lead declines in other global equities, or worse, spur a complete market crash.
Global indices climbed this morning, starting with the Asia Pacific region, from Australia to Hong Kong. Tech stocks in the MSCI Asia Pacific remained steady, good news after the NASDAQ 100 Index suffered its worst two-day fall since September 2016. Tech stocks in Europe pared 1.3%, opening at 41.50, where it continues to remain steady today.
Still, investors should be cautious. The NASDAQ fell as much as 1.9 percent during yesterday's trading. The bottom line: despite the global tech sell-off and political risks in the US and the UK, global equities are still attracting buyers, even when they're less than 0.8 percent from all-time highs.
Oil recovered from its plunge off its $52 high on May 25, before the disappointing OPEC cut-extension announcement pushed the commodity down to $45.20, the lowest in over a month. Today it is trading over $46, after Friday’s and Monday’s first back-to-back gains in three weeks, ironically during the same two days that global tech stocks crashed.
Perhaps oil rising for the first time in a while on the very same days as the tech selloff isn’t a coincidence. As you can see in the chart above, while the NASDAQ had its worst 2-day loss of the year at three percent, the NASDAQ's crude oil index rose 0.94%.
Another, seemingly unrelated event to the tech sell-off is the much-anticipated Fed policy decision and its forgone conclusion of a second quarter-percent rate hike this year. There is a minority market opinion that the recent reflation rally occurred because of economics, and not President Donald Trump’s pro-growth agenda.
During the two-day 3% tech sell-off, the same exchange’s financial sector actually rallied 3.6%, more than the NASDAQ 100’s much talked about fall. So, is the tech sell-off a leading indicator of an impending market crash, or are equity investors simply rotating out of momentum stocks and into value stocks?
While 90 percent of tech stocks were down yesterday, financials and energy — laggers this year — were up. Growth indices were down, but value indices were up. This trend is likely to continue over the next weeks to months, rather than just days, as tech valuations have become disproportionately high. However, tech stocks may get a small boost on higher exports, thanks to a weaker dollar.
Safe haven assets such as Treasuries, gold, the Japanese yen and US dollar are trading within a holding pattern, ahead of tomorrow's Federal Reserve policy meeting.
The pound, whose fortunes seem directly tied to the UK's PM Theresa May, was unable to climb. It is still unclear whether May can survive the fallout from her unsuccessful election gamble. The question is whether investors will look beyond May's political survival when determining the value of the GBP.
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