The reopening of the economy combined with pressure on bitcoin and SPACs is triggering a broad selloff here on Tuesday morning.
Nasdaq, small-cap and speculative stocks are set for an ugly open this morning as the rotation into the "Reopening the Economy' trade has killed the momentum in the groups that have been leading the market for many months.
Comments about the "extremely inefficient" bitcoin from Treasury Secretary Janet Yellen are contributing to the rotational action, and a very poor response to the much-anticipated Churchill Capital Corp IV (CCIV) special purpose acquisition company (SPAC) deal for Lucid Motors is contributing to the pressure as well.
The irony of this corrective action is that it is triggered primarily by increased optimism that the economy is returning to normal more quickly than many have anticipated. There has been clear evidence that vaccines are effective and Covid cases and hospitalizations are dropping.
Many big technology stocks have benefited from the work-at-home phenomenon, but the FATMANN names have been underperforming for a while already. The selling is spreading into other speculative groups that have been the safe havens for aggressive investors. At the top of the list are SPACs and electric vehicles. When leading speculative groups such as bitcoin and SPACs get hit, it tends to spill over to all momentum groups. Most of them recently have been small-cap themes such as cannabis, gambling, solar energy and biotechnology.
The market has been due for some deeper corrective action, and it is likely going to take some time for it to play out. Still, the good news is that this sort of correlated selling always creates a new crop of opportunities as many good values are sold along with everything else.
Federal Reserve Chairman Jerome Powell is scheduled to testify later here on Tuesday, and the market will be looking to him to help provide some support with dovish comments.
The return to a "normal" economy is a very positive thing, but this market is having a very difficult time making the transition at this point. Good stocks will come back quickly, but right now this is index-driven, correlated selling, and nothing is safe.
