S&P 500 Index to see a period of profit-taking

US stocks have come under pressure as the mega tech companies that had driven markets to record highs fall out of favour with speculators. The S&P 500 fell 3% at the low point on Friday but ended down 0.8% While the tech-heavy Nasdaq Composite retreated 1.27% after regaining morning losses of 5%. More downside left to play for, according to FXStreet's Ross J. Burland. 

Key quotes

“Stock of Apple plummeted 7%, while Facebook and Amazon shed more than 6%. Google parent Alphabet and Microsoft both fell at least 4%. Zoom lost another 4% since Thursday's sell-off. While the correction has been sharp, in reality, it's a drop in the ocean. All of the companies just mentioned are still much higher for the year where we have seen consecutive days of some 4% gains in some stocks such as Apple.”

“The drop in the benchmarks came on the same day that the US reported its Nonfarm Payrolls which showed that employers had added another 1.4M job in August. The unemployment rate has dipped below 10% to 8.4%, the first time it has been below 10% since the pandemic hit the US. If this was just a tech shake out, then the data should be encouraging for investors as we come out of the summer lull and move towards a very heated autumn season.”

“One of the historical realities of the stock market is that it has typically performed poorest during the month of September. Some have dubbed this annual drop-off as the ‘September Effect’. While the ‘September Effect’ is a market anomaly, unrelated to any particular market event or news, we have just seen the sharpest decline since June, the Fed confirming before their September meeting a new tactic which many believe could be detrimental to the economy in the long run, the coronavirus spread and uncertainties of the US elections.”

“High-frequency data will continue to be monitored. The US manufacturing sector has been experiencing a robust V-shaped recovery and most areas of service sector activity are improving also. However, we have started to see data that suggests the post-reopening surge in activity began to moderate in July. With the pandemic continuing to create most of the challenges, it will be a thorn in the side for Wall Street if this is a theme that will continue for August and the rest of the year.”