Stocks fell Tuesday morning, with the Nasdaq adding to Monday's losses as technology stocks came under increasing selling pressure as inflation concerns rose.
The S&P 500 and Dow also dropped. A day earlier, the Dow briefly topped 35,000 for the first time ever before erasing gains to end in the red. The Nasdaq dropped 2.6% to post its worst day since March. The S&P 500 also dropped more than 1%, with technology stocks sliding as traders rotated away from high growth stocks that could be impacted by rising inflation during the recovery out of the pandemic.
With a strong quarterly earnings season winding down – aside from a couple notable names including Disney (DIS) reporting later this week – investors are taking stock of the next catalysts for markets, with rising prices a key focal point.
According to data from Bank of America, mentions of inflation have increased nearly 800% year-over-year in quarterly earnings calls and reports. Bank of America equity strategist Savita Subramanian said that strong earnings, rising inflation and improving corporate sentiment "all point to a continued rotation into Value."
“We have an accelerating growth environment with the prospects for some inflation. And for investors, when they think about inflation, they tend to move away from tech stocks, because they think of tech stocks as longer-duration assets in which you're not going to be paid well into the future, and they'd instead rather own parts of the market that are more highly correlated with nominal GDP, " Brian Levitt, global market strategist for Invesco, told Yahoo Finance. "What we're going through right now is a reversion back to where we likely otherwise would have been had it not been for the coronavirus outbreak. In that reversion, you'll see more economic sensitive names outperform."