Technology stocks and sector-related ETFs plunged Tuesday on signs of a rotation from this year’s leaders.
The Technology Select Sector SPDR Fund (NYSEArca: XLK) fell 2.4% Tuesday after jumping 35.4% year-to-date.
Semiconductors were among the worst off during Tuesday’s selling, with the VanEck Vectors Semiconductor ETF (NYSEArca: SMH) down and the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) 4.6% lower.
Bearish traders, though, made a killing with bets like the ProShares UltraShort Semiconductors (NYSEArca: SSG), which takes the -2x or -200% daily performance of the Dow Jones U.S. Semiconductors Index, and the Direxion Daily Semiconductors Bear 3x Shares (NYSEArca: SOXS), which provides a -3x or -300% performance of the PHLX Semiconductor Select Index. On Tuesday, SSG jumped 7.7% and SOXS surged 13.0%.
As Congress mulls over the new tax bill, FANG stocks, which include Facebook, Apple, Netflix and Google, that led gains throughout the year declined the most in 22 months on Tuesday while all 15 members of the S&P 500 Semiconductor Index retreated, Bloomberg reports.
“The large tech companies already have low effective tax rates because they were gaming the system,” Michael O’Rourke, chief market strategist at JonesTrading Institutional Services LLC, told Bloomberg. “Any reform would have to close the loopholes, which obviously they’re trying to do, so they don’t benefit.”
U.S. equities started off the day on speculation that the Senate would pass cuts to corporate taxes, with the financial segment leading on bets that banks would benefit the most.
Some observers view the sudden shift as a catalyst for a sector rotation play.
“It’s surprising that you’re seeing a pullback this big after such a strong fundamental performance,” Mike Bailey, director of research at FBB Capital Partners, told CNBC, noting that tech earnings have been strong. “I do wonder if there is some rotation going on. The banks’ story is getting better after Jerome Powell’s testimony.”
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