Did a Trump Tweet Just Doom the Stock Market?

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No one is watching the tape closer than Donald Trump.

The president loves to remind everyone when the major averages are spiking to new all-time highs. He can’t help but tell us how his administration has improved our pathetic lives at every 1,000-point Dow milestone. Stocks are unstoppable, he says. America is winning again!

So we weren’t surprised to see the president celebrate the passing of the Republican tax bill in style early Monday morning…

As luck would have it, trading started with a bang. But the stock market’s big move fizzled as the day wore on. By the closing bell, only the Dow remained positive. The S&P 500 finished the day just barely in the red. But the Nasdaq rolled over, dropping more than 1% to begin the trading week.

So much for the stock market’s big day…

Wall Street’s tech darlings have finally found some sellers. We are seeing the continuation of the FAANG bloodbath with more weakness from the market’s most recognizable stocks. Facebook and Amazon each dropped more than 2% to start the week. The semiconductors took the brunt of the damage. The VanEck Vectors Semiconductor ETF (NYSE:SMH) dropped more than 2% while industry leader NVIDIA Corp. cratered almost 6% on the day.

Tech stocks have led the market higher all year. But did Trump’s cocky tweet just doom the strongest sector of 2017?

Let’s break it down…

Big tech’s mammoth gains and the market’s notable lack of volatility have lulled many investors to sleep. But the post-Thanksgiving jolt has been a slap in the face. It’s a painful reminder that stocks (even your favorite tech names) can’t rocket higher every single day without encountering some pullbacks and corrections along the way.

You can see how easy it is to view this big tech beat-down as a scary and potentially bearish event for the entire market.

Don’t fall into this trap!

Even factoring in the recent drop, Facebook, Amazon, and even the semiconductors are still sitting on impressive year-to-date gains. No matter which way you slice it, these stocks aren’t in trouble yet. Long-term shareholders might be a little miffed — but they certainly aren’t scared.

Let’s not forget tech’s summer swoon. Most traders are so focused on the daily action that they forget about the 10% slide the semiconductors endured back in June. Or Amazon’s 8% flash-crash when the stock first flirted with $1,000 almost six months ago.

If these corrective moves we’re seeing right now persist, it could be time for this winner-take-all market to share some of its spoils. In fact, we’re already seeing the start of some good ol’ fashioned market rotation.

Remember, a healthy bull market is like a relay race. When market leading industries and sectors become overextended, traders will move on to the next hot group of stocks. That’s what’s happening right now. Some of the market’s forgotten groups are finally getting some love while the biggest winners of the year endure some downside action. Nothing wrong with that…

Last week, we showed you two sectors that are taking the baton and sprinting into the lead. The Dow Jones Transportation Average just went on a three-day romp fit for the history books. The group posted a massive three-day gain of more than 7% to close out November trading. It extended its gains to begin the new trading week.

The retail sector is also on a tear. The SPDR S&P Retail ETF (NYSE:XRT) just jumped to new 2017 highs yesterday. With Wall Street’ focus on Amazon and the growth of E-commerce, most folks didn’t see this breakout coming.

It’s clear where the hot money is flowing. Tech might be slumping right now — but there are still plenty of strong trades left to hand us double-digit gains.

Sincerely,

Greg Guenthner
for The Daily Reckoning

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