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Tech Wreck V2.5 – Tech Smashed as Banks Rally On Tax Reform
We have seen this story before, haven’t we? Tech gets smashed in one day, falling by 1 to 2 percent. It happened a number of times over the summer.
So how does it work, somebody wakes up one morning and says “I think we oughta sell Tech today.” I mean really, what changed in such a significant way that technology sold off so hard, driving the Nasdaq composite down by 1.25 percent? Autodesk ($ADSK)? Don’t think so, a company that makes $2 billion sales isn’t big enough to take a down group.
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Today’s sell-off in Tech started yesterday as we noted the weakness in some the leading technology names, despite a sharp rise in the S&P 500. As we have noted many times before, the technology sector had become overextended, as evidence of the XLK ETF. We had feared a sell-off, but like everyone gave into temptation that trend had merely shifted. To this point, the XLK is still holding the makings of this new trend, but it will be interesting to see how the market responds to today’s sell-off when trading continues tomorrow.
Tech Names Crushed
You name it, crushed, Nvidia, Tesla, Netflix, Micron, and Facebook were among the hardest hit, all declining by 4 percent or more.
NVDA Price data by YCharts
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 Rotation In To Banks
For today at least the money that moved out of technology and went right into financials, and the good news is that the money is not leaving equities, merely rotating. Banks are rising as a play on tax reform, not a rise on anything else. Because the banks happen to pay some the highest effective tax rates, at nearly 30 percent.
JPM Effective Tax Rate (TTM) data by YCharts
Tax Reform Plays
Disney and Starbucks are another two examples of stocks with high effective tax rates as well. Companies with high effective tax rates are going to be part of this rotation, and it is likely to continue.
Does it mean the sell-off will continue to come at the expense of Tech? Perhaps, tomorrow will be telling. If the sell-off in tech resumes tomorrow, the XLK could fall another 5 percent to around $60.50.
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Michael Kramer and the Clients of Mott Capital own shares of NFLX, GOOGL, TSlA, SBUX and DIS
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Tags: #banks #technology #nasdaq #tax #reform #disney #starbucks #netflix #tesla
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Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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