As geopolitical tensions continue to heat up and volatility spikes worldwide, the trends that have been working for the first part of the year are beginning to pause. While emerging markets, commodities, and international equities continue to outperform US equities, two things happened this week that signal a shift may be taking place.
First, the military conflict in Iran led to a sudden selloff across securities, with the market leaders taking the largest initial hit. Second, the US dollar, which had been steadily declining against foreign currencies since the end of last year, firmed at prior support and turned upward. Global investors began treating it like the dominant global reserve currency again as they made their initial flight to safety. Since the US dollar typically has an inverse relationship to emerging markets, commodities, and international equities, it only makes sense that these were some of the hardest hit areas of the market.
While we don’t think the selloff in large cap technology stocks is done quite yet, there are signs of life that are beginning to show. Certain areas of the sector, such as software, were down nearly 30% from their peaks. This type of selling hasn’t been seen since the Covid crash in what were some of the market leaders of the last few years. In the last couple of sessions, while equities have been selling off indiscriminately, some of these technology names have been ending the day green in a sea of red. So while it may take a bit more time to fully digest the staggering outperformance over the last couple of years, this quick and drastic decline may have created some buying opportunities even while other areas of the market are currently hogging the spotlight.
***Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.