Technology, which has led the stock market on the way up, is now leading on the way down.
The Wall Street Journal summed it up: “The tech-heavy Nasdaq was hammered, falling more than 3% in recent trading and on pace to close in correction territory, or down at least 10% from its recent high.”1
At the time of this writing early Friday, August 2nd, 2024, most of the Magnificent Seven are down 10 percent or more.
Sometimes, an overreliance on outperformance can lead to underperformance.
Though it’s always best to do this on the way up, moments like this are a good time to refresh yourself on risk assessment and asset allocation. If you were thrilled with a massive jump in your portfolio due to being overweight in the technology sector, why would you be surprised on the way down?
That’s the way this works.
There is a silver lining. Some areas of the market have performed quite well in July. Kevin Gordon, Senior Investment Strategist over at Charles Schwab, pointed out on X:
Now confirmed that July was the strongest month on record (going back to the mid 1990s) for the % of S&P 500 members outperforming the index on a 1-month basis.2
Rotations in the stock market from one sector to another happen. For example, Bank of America Global Research highlights that small cap stocks experienced the 2nd largest weekly inflow ever in July.3
Will this rotation last? Time will tell.
Remember diversification.
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Sources:
1. August 2, 2024, 11:23am. Accessed online: Stock Market Today: Dow Drops 700 Points; U.S. Job Report Shows Growth Slowdown — Live Updates
2. August 1, 2024, 4:30am. Accessed online: Kevin Gordon (@KevRGordon) on X
3. Referenced by Andrew Sarna on July 22nd, 2024, in his Substack titled “Violent Rotations & Biden’s Demise”.