The spike in Treasury yields has triggered a bloodbath in the broader U.S. stock market. Rising yields have sparked fears about faster-than-expected rates hike that will lead to tighter financial conditions and thus derail economic growth. This has diminished the appeal for U.S. equities.
While all the 11 sectors were in red, the hot and soaring technology sector was the biggest laggard with the S&P 500 Information Technology Index plunging 48%. This marks the biggest decline since Aug 18, 2011, when the index dropped 5.3%. The so-called FAANG stocks and semiconductors, which were once investors’ darling and the biggest driver of the nine-year bull run, took a toll on the sector (read: Market-Beating, Top-Ranked ETFs of the Longest Bull Market). Netflix ( NFLX - Free Report) and Twitter ( TWTR - Free Report) shed more than 8% each while Amazon ( AMZN - Free Report) plunged 6.2% representing the worst one-day loss since 2016. Apple ( AAPL - Free Report) dropped 4.8% and Alphabet ( GOOGL - Free Report) slid 4.6%. Facebook ( FB - Free Report) also saw a steep decline of more than 4%. Advanced Micro Devices ( AMD - Free Report) lost more than 8% and NVIDIA NVDA dropped 7.5%. VIDEO
ETF Impact The awful trading in the stock world also pushed the technology ETF space into the deep red on the day. The ultra-popular SPDR Technology Select Sector ETF (tumbled 4.5% - the biggest one-day decline since August 2011. While there are many ETFs that have piled up huge losses compared to XLK, we have highlighted the worst five performers of the day (read: XLK - Free Report) Tech ETF Hits New 52-Week High): AdvisorShares New Tech and Media ETF FNG - Down 6.8% This is an actively managed ETF designed to invest in companies that are driving economic growth in the modern era and can adapt to changing leadership by maintaining the ability to invest in next generation of technology and media companies leading the equity markets. It seeks to provide a similar return stream to the performance of technology and media equity leaders as characterized by the FANG stocks acronym. Global X FinTech ETF ( FINX - Free Report) - Down 5.8% This product invests in companies on the leading edge of the emerging financial technology sector, which encompasses a range of innovations helping to transform established industries like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions (read: Move Over FANGs, FinTech ETF is Hot Now). The 3D printing ETF ( PRNT - Free Report) – Down 5.8% This fund offers pure play exposure to the global 3D printing industry by tracking the Total 3D-Printing Index. Invesco DWA Technology Momentum ETF ( PTF - Free Report) – Down 5.7% This fund follows the Dorsey Wright Technology Technical Leaders Index and provides exposure to companies that showing relative strength (momentum). Ark Web X.0 ETF ( ARKW - Free Report) – Down 5.5% This is an actively managed fund focusing on companies that are expected to benefit from the shift in technology infrastructure to the cloud, enabling mobile, new and local services. These include companies that rely on or benefit from the increased use of shared technology, infrastructure and services, Internet-based products and services, new payment methods, big data, Internet of Things, and social distribution and media. What Lies Ahead? Despite the slide, the technology sector is still the best performing sector of this year so far. The trend is likely to continue in the months ahead, given expectations of strong earnings, improved overseas demand and innovative technologies (see: all the Technology ETFs here). The emergence of cutting-edge technology such as cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence and other advanced information technologies are acting as catalysts. Additionally, the twin tailwinds of Trump’s tax reform plan and a rising interest rate scenario are pushing stocks higher. This is because tech titans hoard huge cash overseas and are poised to benefit the most from the reduced tax rates. Most of the tech companies are sitting on a huge cash pile and are in a position to increase payouts to their shareholders. The cash reserve will ensure that these companies are not plagued by financial trouble in a rising interest rate environment. Adding to the strength is a pickup in the economy and better job prospects that will provide a solid boost to the economically sensitive growth sectors like technology, which typically perform well in a maturing economic cycle (read: Big Tech Sector Shake-Up Put These Stocks and ETFs in Focus). Given the solid outlook but somewhat bearish near-term sentiments, investors may want to consider staying on the sidelines for the time being. However, risk tolerant long-term investors may want to consider this recent slump a buying opportunity, should they have the patience for extreme volatility. Want key ETF info delivered straight to your inbox? Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>