The Nasdaq Composite extended its slide on Tuesday–and even the Dow Jones Industrial Average was struggling after hitting an intraday record this morning.
The tech-heavy index was down 1.5%, while the Dow was down 90 points, or 0.2%. The S&P 500 was down 0.7%. All this was happening on a day when 315 of the stocks in the S&P are on track to close higher. What gives?
“Some modest weakness on the surface today across the major indices, but it’s the factor unwinds showing the true story,” writes Jonathan Krinsky, BTIG’s chief market technician. “Baskets such as high beta momentum, high vs. low volatility, or retail favorites are all suffering their worst days since April.”
Factor is a term for the ways market participants group stocks based on a criterion such as risk, momentum, dividends, or earnings growth prospects. There are plenty of factor-focused ETFs, out there, and those focused on momentum (recent winners) were getting hammered. While there isn’t an obvious catalyst, traders could be using the slow start to the week as a way to take profits in some highflying positions.
“High beta long/short momentum having its worst day since April and also breaking under its 200 DMA,” Krinsky writes. “High momentum long is into support, but failure here would suggest a meaningful ‘false breakout’. High vs. low volatility also having its worst day since April.”
Indeed, among the top factor ETFs were those focused on value stocks, low volatility stocks, and dividend stocks.
The Roundhill Magnificent Seven ETF, which gives exposure to Microsoft, Nvidia, Apple, Meta Platforms, Amazon.com, Alphabet, and Tesla, was down 1.5% with all seven of the key megacap tech stocks down on the day.
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