Home ยป Tech Wreck V2.5 – Tech Smashed as Banks Rally On Tax Reform

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Tech Wreck V2.5 – Tech Smashed as Banks Rally On Tax Reform

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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 andย 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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^IXIC Chart

^IXIC data by YCharts

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.ย  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, allย  declining by 4 percent or more.

NVDA Price Chart

NVDA Price data by YCharts

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ย 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) Chart banks

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.ย  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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Tags: #banks #technology #nasdaq #tax #reform #disney #starbucks #netflix #tesla