A global shift away from highly priced technology stocks continued on Tuesday as investors adjusted their portfolios following a breakthrough in the hunt for a Covid-19 vaccine.
The Nasdaq Composite sank 1.9 per cent by late morning in New York, compared with a fall of 0.7 per cent for the blue-chip S&P 500 share index. Tech was also one of the worst-performing sectors in Europe’s Stoxx 600 index, as other segments such as financials pushed ahead.
Meanwhile, the Russell 2000 grouping of small-cap stocks, seen as a barometer of the US economy, rose 0.9 per cent.
Pierre Bose, chief investment officer at wealth manager Tiedemann Constantia, said some “faster money” was selling out of the tech sector, partly to take profits after a sustained rally, and on the expectation that sectors more closely linked to the economy would benefit if the arrival of a vaccine allowed social restrictions to be eased.
“Could you see a short term rotation into cyclicals right now and into things that have been really beaten down? Absolutely,” he added.
Upbeat data released on Monday about the Covid-19 vaccine being developed by Pfizer and Germany’s BioNTech raised hopes that the shot could start to be distributed this year. But analysts warned that there were uncertainties regarding the rollout, while cases had continue to surge in the US — where investor jitters had been stoked by President Donald Trump’s efforts to challenge Joe Biden’s election victory.
“Encouraging results are welcome, but we argue for caution: a vaccine available in 2021 was already most investors’ base case,” said Padhraic Garvey, regional head of research, Americas, at ING.
Investors have shunned companies that have been winners during the pandemic. Amazon’s shares fell about 4 per cent in morning trading on Tuesday. Zoom, the videoconferencing app, fell 8 per cent. London-listed online grocery retailer Ocado lost 6 per cent.
A more systemic rotation out of Big Tech “is going to be gradual”, said Sophie Huynh, multi-asset strategist at Société Générale. More certainty about the course of the pandemic and the introduction of a vaccine would be needed before such a change took hold in earnest, she added.
Chris Ralph, chief global strategist at SJP, said it would be “foolish” to assume “the value versus growth dynamic has turned around” before investors knew that the worst of the pandemic was over.
Oil prices built on Monday’s rally, with global marker Brent crude climbing a further 1 per cent to just shy of $43 a barrel. Gold, a haven asset that sold off heavily on Monday, rose 1 per cent to just above $1,880 a troy ounce. The continent-wide Stoxx Europe 600 stocks benchmark, meanwhile, climbed 0.9 per cent.
In Asia, the vaccine news drove stocks higher overnight, with Tokyo’s Topix and Hong Kong’s Hang Seng both up 1.1 per cent. Japan’s Nikkei 225 Average also surged as much as 1.5 per cent, rising above 25,000 for the first time in almost three decades.
But China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks slipped 0.6 per cent after data showing consumer prices rose at their slowest pace in more than a decade in October — with non-food inflation ceasing altogether. The figures suggested weakness in the world’s second-largest economy, which has broadly led the global recovery from the pandemic.
Frank Benzimra, head of Asia equity strategy at Société Générale, said the fall in Chinese stocks was also partly a knee-jerk reaction to the vaccine news as rival exporters now stood a better chance of returning to full capacity within 12 months.
“Does it mean the end of the China [stocks] story? Absolutely not,” he said. “It’s a short-term reaction . . . from an equities point of view, the fundamentals of the Chinese market are still very good.”
The rally in stocks drew funds out of sovereign debt on Monday as investor appetite for risk returned, pushing yields higher. But bonds were largely unchanged on Tuesday, with the yield on 10-year US Treasuries steady at about 0.95 per cent.