Monday turned into the stuff of nightmares for Tech and Growth or, more to the point, Monday felt a lot like some of October’s worst days.
It was clear on Friday that Tech was still on shaky footing despite the broader market’s efforts to rebound from last month’s rout. October was defined by wild rotations from Growth to Value and back again. The market lived and died by that dynamic, with an emphasis on “died”, because by the time it was all said and done, big-cap Tech logged its worst month since 2008.
Well, over the weekend, we gently reminded everybody that while the S&P was doing ok in November, the Nasdaq 100 was on pace to log a third consecutive month of underperformance. That would be the longest such stretch since 2013. Here’s an excerpt from “As Hedge Funds Face Redemption D-Day After ‘Red October’, Loeb Exits Facebook, Warns On Tech“:
The FAANGs are a train wreck, plain and simple. The most crowded trade on the planet is starting to crack after a year that’s seen a number of false starts, including the late March swoon tied to regulatory jitters and the late July stumble following Facebook’s earnings.
If those episodes were dress rehearsals, this looks like the real deal.
Fast forward to Monday and there was some “real deal” pain for Tech.
Things got off on the wrong foot when iPhone demand jitters sent Apple sharply lower and it snowballed from there. By the time it was all said and done, the Nasdaq 100 was down a truly egregious 3%. That makes three days since October 9 that big-cap Tech has lost 3% or more in a single session.
The spread between the NDX VIX and the “regular” VIX is up to ~8 vols and we’re now more than 2 standard deviations above the one-year mean there.
20-session realized vol. is extremely elevated for obvious reasons.
As you might imagine given all of the above, Monday was a day that saw Value outperform Growth in “big league” fashion. This was a persistent theme in October. Recall that last month, the iShares Russell 1000 Value ETF saw the largest monthly inflow of the year.
That ETF outperformed its Growth counterpart by the widest monthly margin since January 2008 over the course of last month.
“Since the start of Q3, investors have been rotating out of Growth into Value”, Barclays wrote as October came to a close, adding that “as a result, the three biggest US Value equity ETFs in terms of AUM are now recording net inflows on the year, while Growth equity ETFs are having outflows.”
That was pretty remarkable.
Speaking of remarkable, on Monday, Value outperformed Growth by the second-widest margin of the year.
You can chalk this up to whatever you like, but the bottom line is that the ongoing malaise in Tech and FAANG is getting harder to ignore. And if you think this is a market that cannot hold up in the face of an honest-to-God rout in the most crowded trade on the planet (i.e., “Long FAANG”), well then we’ve got a problem on our hands.
It’s also worth noting that the forward multiple premium for the Nasdaq 100 versus the S&P has now contracted to its lowest of the year.
Consider that, and then have a look at the following visual from Goldman, which I certainly hope speaks for itself.