Tech Stocks Lead Surge in S&P 500 and Nasdaq on…

The tech sector continues to push the markets higher on Tuesday along with better economic data coming out of China. The U.S. Industrial Production data for August shows 0.5% jump.

On Tuesday, the broader markets on Wall Street showed renewed optimism gaining for the second straight on the backdrop of the strong economic data. The Nasdaq Composite (INDEXNASDAQ: .IXIC) gained 1.2% to close at 11,190 levels while the S&P 500 (INDEXSP: .INX) gained 0.5%. Similarly, gaining over 200 points during the trading hours, the Dow Jones Industrial Average (DJIA) managed to close at 27,995. Tech stocks continued to lead the market surge for the second consecutive day. Giants like Alphabet Inc (NASDAQ: GOOGL), Amazon.com Inc (NASDAQ: AMZN), and Microsoft Corporation (NASDAQ: MSFT) all increased over 1.5% while Facebook Inc (NASDAQ: FB) gained 2.4%. Netflix Inc (NASDAQ: NFLX)was the outperformed among the FAANG stock gaining around 4.1%. Tesla Inc (NASDAQ: TSLA) shares registered 7% gains on Tuesday after jumping 12% on Monday.

The tech stocks behemoth Apple Inc (NASDAQ: AAPL) didn’t show a significant surge. The AAPL stock closed the day in green with just 0.18% gains as the company made some big announcements. Apple launched its new Apple One subscription services while bundling all of its other subscriptions under one single offering. The tech giant also announced Apple Fitness+, a virtual and personalized fitness experience for all Apple Watch users.

Speaking to Yahoo Finance about the continued rally in the tech space, Tom Lee, head of research at Fundstrat Global Advisors, said:

“Last week was rough. I think markets are at a crossroad since we’ve gained so much since March. And the economic data’s been better, the health data has been encouraging, since cases are falling. But from a markets perspective, nothing is really decisive. I think investor are still torn, and I think that’s why they’re sticking with these tech stocks”.

U.S. Industrial Production & Economic Data

The U.S. Federal Reserve released data for industrial production showing a 0.4% climb for the month of August. However, this was much less than Wall Street actually expected after a 3.5% surge in July, the previous month. Although production increased for the fourth consecutive month, it remained 7.3% below pre-pandemic levels. On the other hand, the banking stocks also continued to remain under pressure on Tuesday.

The positive driver for the market was a better than expected economic data coming out of China. The Asian economic giant reported the first retail sales jump for the year 2020. The retail sales in China rose 0.5% in August as per the National Bureau of Statistics. Analysts expect that China could touch its pre-virus growth rate by the end of the year.

With the continued rally in the markets after the March 2020 crash, analysts are expecting a correction ahead. BTIG’s Julian Emanuel told CNBC that investors should maintain caution at this point, especially in the tech sector. Emanuel says that the FOMO in the tech stocks is causing more retail investors to pour money at such high levels. He added:

“Rather than fear being priced in the options market, there’s fear of missing out. The price of out of the money calls, as was the case throughout August, is still trading at a premium to the price of out of the money puts. That is a very abnormal position.”

Emanuel expects the tech-heavy Nasdaq to correct at least 15-20% from its all-time high on September 3. He also supposes that a second wave of selling is possible just before the U.S. Presidential Elections on November 3.

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