2020 saw the tech sector basking in the sunlight, but 2021 is starting out to be the year of cyclical sectors. Traders can play the short-term weakness in tech using the Direxion Daily Dow Jones Internet Bear 3X Shares (WEBS).
“Cyclicals have certainly had the upper hand here for a while, trading off the reopening of the economy. Tech plus holds in there because it’s really the promise of the future – it should provide investors with steady growth,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York, in a Reuters report.
WEBS seeks daily investment results equal to 300% of the inverse of the daily performance of the Dow Jones Internet Composite Index. The fund, under normal circumstances, invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse or short leveraged exposure to the index equal to at least 80% of the fund’s net assets.
The index includes companies that generate at least 50% of their annual sales/revenue from the internet, as determined by the index provider. WEBS is up almost 8% the past month as investors’ taste for tech turned sour.
Why Are Investors Dumping Tech?
Recent trading sessions have seen more investors dump shares of tech as cyclical strength came to the forefront. A broad-based tech index in the Nasdaq 100 is down 3% in the past month.
“U.S. stocks ended down slightly on Tuesday, with investors selling tech-related growth shares after U.S. Treasury yields hit a 14-month high,” a Reuters article noted. “At the same time, the S&P 500 financials, industrials and consumer discretionary sectors rose, extending the recent rotation out of growth and into so-called value names.”
“Tech shares trimmed losses in afternoon trading with Treasury yields off the day’s high, but the S&P technology sector ended down 1% on the day and was the biggest drag on the S&P 500,” the article added. “The Nasdaq was on track for its first monthly loss since November following the recent rise in yields.”
The article noted that tech stocks in particular have taken a gut punch since Treasury yields have been ticking higher. The Dow Jones Internet Composite Index that WEBS tracks is only up 0.68% year-to-date after climbing 71% the past year.
“It’s somewhat of a leadership-less market,” said Ghriskey. “Investors’ preferences are flipping around here almost on a daily basis, primarily between tech plus and cyclicals.”
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