Stocks futures were mixed in early morning trading on Tuesday after technology shares suffered their worst sell-off in more than five months.
Futures on the Dow Jones Industrial Average gained 227 points, while S&P 500 futures were higher as well. The Nasdaq 100 futures, however, traded in negative territory.
Stocks just snapped a five-week winning streak after a big reversal in major technology stocks last week. Steep losses in Amazon, Apple, Microsoft and Facebook — 2020’s market leaders — drove the tech-heavy Nasdaq Composite down 3.3% to suffer its worst week since March 20. The Dow and the S&P 500 fell 1.8% and 2.3% last week, respectively, posting their biggest weekly losses since June.
Many on Wall Street believe the weakness derived from worries that the massive tech run-up pushed valuations to unsustainable levels. The aggressive buying of growth stocks has also been spilling into the options markets. Even with last week’s pullback, the Nasdaq is up more than 70% from its March bottom.
“Given how extreme many of the indicators we follow had become by early this past week, we believe it will take more than just a mild decline to work off those conditions,” Matt Maley, chief market strategist at Miller Tabak, said in a note on Sunday. “Therefore we still believe a correction of more than 10% is probable.”
Maley pointed to the extreme overbought conditions in some of the megacap tech names as well as the elevated valuation levels for the S&P 500.
Last week’s Big Tech slump coincided with an outperformance in cyclical stocks — names most sensitive to the economic recovery. The S&P 500 materials and financials sectors were the two biggest winners in the prior week, up 2.3% and 0.9%, respectively.
Amid the big rotation, the Cboe Volatility Index, known as the VIX or the market’s “fear gauge,” hit a high of 38.28 on Friday, its highest level since June 15.
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