Traders return to tech and eye abroad
07/13/17

An object in motion tends to stay in motion. If it’s true for planets, then why not stocks? That’s what traders seemed to be thinking when it came to some key sectors yesterday.

After all, technology has ruled the roost in 2017. The sector outran every other major group by a wide margin through early last month, only to hit a brick wall on June 9. The stocks continued lower after that initial drop, but recent sessions are giving momentum players reasons to think the bigger trend will continue:

  • First, S&P’s Technology Select Sector Index rose for its fourth straight session yesterday. Winning streaks like that were common in February and May, but it’s the first time such a move occurred since that big drop on July 9. 
  • Second, the sector is back on top of the totem pole so far this month with a gain of almost 3 percent. 

Speaking of FAANGs, investors found some catalysts to sink their teeth into as Amazon.com (NASDAQ: AMZN) and even Tesla (NASDAQ: TSLA) continue to expand their grip on the U.S. economy.1 Takeover speculators have had a field day too as analysts play matchmaker.2 And don’t forget about the onslaught of earnings that begin with Netflix (NASDAQ: NFLX) next Monday. Wall Street expects double-digit growth for the sector this quarter.3

Momentum followers also have their sights set on global stocks, which began rallying in March and broke out in April after Emmanuel Macron won the French presidency. Like tech, they pulled back in June but are outpacing the S&P 500 once again in July. Emerging markets like India and Brazil are leading the charge so far.

Nasdaq (NDX), 3-month chart

Source: OptionsHouse by E*TRADE

“Sentiment among German business is jubilant,” declared one surveyor in Munich shortly before the Fourth of July.4 “Business conditions in India’s service sector continued to improve in June,” stated another researcher in Mumbai just as our fireworks were dying down.5 “China growth is proving to be more robust than expected and this is true in Japan as well,” observed another economist this week.6

Then there’s the U.S. dollar. It’s generally moved in the opposite direction as tech because a weaker greenback tends to correspond with lower interest rates, which is also good for high-multiple stocks like we see in the tech sector. Downside in the U.S. currency provides a natural boost to foreign stocks as well. Traders are now asking whether it will continue to slide – especially with the European Central Bank less dovish into its next meeting on July 20.7

Bottom line: The dynamic duo of tech and global took a pause in June, but traders may be coming back to the pair this month.

 

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1. Reuters: Amazon.com on pace to break sales record for 'Prime Day'. 7/11/17. Marketwatch: Tesla's stock could make new highs as Model 3 production ramps--analyst. 7/5/17. CNBC: Tesla drastically expands its service network as Model 3 deliveries start. 7/11/17.

2. Marketwatch: PayPal should buy Square, analyst says, and Square hits a new high. 7/12/17. Marketwatch: GrubHub's stock surges after analyst says company could be Amazon's next takeover target. 6/19.17.

3. FactSet: Earnings Insight. 7/7/17.

4. Ifo Institute: ifo Business Climate Index Hits New Record High. 6/26/17.

5. Nikkei / PMI by IHS Markit: Indian service sector ends Q1 with strong expansion. 7/5/17.

6. Kurt Karl (Swiss Re Sigma research): Global Economic Outlook and Scenarios. 7/10/17.

7. Reuters: ECB open to further step toward slow stimulus exit: minutes. 7/6/17.