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Wall Street Sees Upside to “Healthy” Tech Selling

NEW YORK (Reuters) – Some of Wall Street’s biggest players see the recent tech-driven stock market selloff as a bout of turbulence rather than the start of a longer slide – and they don’t see it as a reason to rush to. the door.

FILE PHOTO: A street sign is seen in front of the New York Stock Exchange on Wall Street in New York, February 10, 2009. REUTERS / Eric Thayer / File photo

Invesco this week called the Nasdaq’s steep decline a “healthy consolidation period”, while fund manager Lord Abbett said US equity valuations are likely to be worthy, based on a company earnings analysis.

On September 4, Goldman Sachs reiterated its year-end price target of 3,600 on the S&P 500, about 6% above the index close on Wednesday, while UBS Global Wealth Management recommended clients to “enter the markets “rather than staying on the sidelines.

Their optimism highlights how the Federal Reserve’s commitment to keep interest rates at historic lows and hopes of a breakthrough in a COVID-19 vaccine have supported market gains this year, though many remain wary of the fact. that the US presidential election and massive options are betting on technology. related stocks could exacerbate market swings in the remaining months of 2020.

“What we think we are addressing is a healthy correction, removing the foam,” said Troy Gayeski, co-chief investment officer of SkyBridge, an alternative investment firm. “Certainly we could fall more. But if you are a tech investor you had to understand that the valuations were very high. ”

The Nasdaq recorded its best day since April on Wednesday, a day after falling into correction territory, commonly referred to as a 10% or more drop from a recent peak. The other major indices also rebounded Wednesday after sharp declines.

“I think of this rout not so much as a correction, but as a digestion,” Kristina Hooper, Invesco’s chief global market strategist, said in a recent statement.

Second-quarter earnings on the S&P 500 were 23.1% above expectations, well above the final five-year average of 4.7%, analysts at Lord Abbett said in a recent statement.

“Earnings momentum and the magnitude of analyst earnings revisions are outpacing that in other markets, suggesting the higher valuations on US equities are deserving,” the report said.

However, some believe greater volatility is in store. A recent investor survey by UBS Global Wealth Management showed that 65% view politics as their top concern, with the US presidential election on November 3 just weeks away.

Leading investor Stanley Druckenmiller – skeptical of this year’s rally – once again sounded a bearish note on Wednesday, warning CNBC that the stock market is in a Federal Reserve-fueled craze.

Uncertainty about Huge Option Purchases by SoftBank Group Corp (9984.T) also roamed the markets, creating another risk.

Gayeski, of Skybridge, said he could see an opportunity to increase equity risk if there was a sharper decline, such as the Nasdaq down 20% or the S&P 500 down 15% from their respective highs and c ‘were other signs of support for the market as the Fed is further expanding its balance sheet.

Any sale that spreads beyond the big tech-related stocks that led the markets to bullish could be an indication that the withdrawal could extend further, said Willie Delwiche, Baird’s investment strategist.

Over the next few days, Delwiche is on the lookout for signs of increasing investor caution – such as buying put options, outflows from equity funds and declining bullish opinion in polls – which indicate that any excessive exuberance has subsided.

Another indicator is how investors respond to key technical support levels, said Keith Lerner, chief market strategist for Truist / SunTrust Advisory. The Nasdaq, for example, closed below its 50-day moving average on Tuesday for the first time since April, but returned above it on Wednesday.

“If you see these markets cut support levels, it’s a sign that sellers have the upper hand,” Lerner said.

Reporting by Lewis Krauskopf; additional reportage by Megan Davies; editing by Ira Iosebashvili and Leslie Adler

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