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.
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.
Geopolitical developments could also weigh on investor sentiment. China accused the U.S. of “bullying” as it launched a global data security initiative on Tuesday. That came as Washington continues to pressure China’s largest tech firms and convince countries around the world to block them. President Donald Trump also recently entertained the idea of “decoupling” from China, or refusing to do business with the country.