September 3, 2020
Fast: Today’s sell-off in Tech looks like the begging of a ‘healthy short-term correction’ amid crowded positioning and record-high multiples. The decline in growth and momentum sectors started quickly and will probably end quickly without broad sector rotation. I think you need to see higher bond yields before you need to worry about sector rotation and large-scale multiple compression. And you also need more than one company (CIEN) issuing bad guidance. While ‘underwhelming’ to some, earnings and guidance from CRWD, GWRE and MDB were solid. And investors should no longer obsess over billings growth for subscription-based software companies, but instead focus on ARR growth. Results and reactions to AVGO and DOCU reports after the close should be instructive.
Risk: Tech is the largest weighting in the S&P 500, so the index will have a hard time while some crowded positioning in the space unwinds. To gauge the potential for a more painful risk-off correction, keep an eye on safe-haven currencies like yen where moves today look small and almost compulsory.