Traders are finally sensing a rate cut in the air for September, and the trend of market rotation is gradually gathering pace. This rotation is shifting from high-growth tech stocks to smaller cap stocks in value-oriented sectors. Yesterday’s selloff in multiple tech names, although driven by macro concerns, was another piece in this jigsaw puzzle.
The Tech Selloff
Popular tech names such as AMD (AMD), Broadcom (AVGO), and Marvell (MRVL) corrected sharply yesterday after ASML’s (ASML) robust Q2 results were overshadowed by concerns of even more stringent U.S. tech curbs on China. Additionally, former U.S. President and current presidential candidate Donald Trump’s sharp comments about Taiwan resulted in Taiwan Semi (TSM) dropping by nearly 8% and NVIDIA (NVDA) correcting by over 6%.
The selloff resulted in the tech-heavy NASDAQ (NDX) slumping by about 2.8%. The Dow Jones (DJIA), in contrast, closed in the green. Still, the tech selloff is also a pointer to opportune profit booking by traders, as a number of AI darlings have risen considerably over the past year.
Here’s What Comes Next…
The focus, though, is now gradually shifting to small-cap and value names as easing monetary conditions come into view. Lower interest rates could also boost the fortunes of companies saddled with high debt levels and interest burdens. Not surprisingly, the Invesco S&P SmallCap 600 Pure Value ETF (RZV) has already rallied by nearly 12% over the past month. Similarly, the iShares Russell 2000 ETF (IWM) is up by 12% over the past month.
This trend could drive up rate-sensitive names in sectors such as real estate, energy, and mining.
Is the IWM ETF a Good Investment?
Meanwhile, the rally in the iShares Russell 2000 ETF may only be beginning to take shape as the ETF is still hovering below highs last seen in November 2021. The TipRanks Technical Analysis tool is also flashing a Strong Buy signal on the ETF on a weekly timeframe. This means investors could capitalise on the market weakness by adding to their positions.
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