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  • US equity markets were under pressure on Monday amid a risk-off/defensive feel to trade.
  • The Nasdaq 100 was the worst performer as big Tech suffered after moving in unison to block US President Trump.

The S&P 500 (-0.66%) and Dow Jones Industrial Average (-0.29%) both dropped on Monday amid a more defensive feel to trade. The former was closed pretty much bang on the 3800 level, only about 0.7% away from the all-time highs set last week, while the latter managed to cling onto the 31,000 level, closing only about 0.6% below the intra-day all-time high set last week.

In terms of why stocks dropped on Monday, there are a few plausible explanations/explanatory factors; 1) an unwind in overweight risk on positioning (profit-taking in “frothy” stocks, risk FX and commodity longs, as well as in USD short), 2) Covid-19 concerns (new variants reported in Japan and rumours in the US and talk of tighter lockdowns in the UK and Germany), 3) US/China concerns (after the US moved to normalise relations with Taiwan and reports emerged suggesting the US is mulling further “action” on China) and, finally, 4) rising nominal and real US bond yields attracting flows from other assets classes (and into US government bond via USD).

If stocks are to see further downside from their current near-all-time record highs levels, most analysts think number one (position adjustment) or number four (a further rise in US bond yields) would be the most likely cause.

The Nasdaq was the underperformer of the major US bourses, with the Nasdaq 100 index dropping more than 200 points of just over 1.5% on the day and falling back below the 13,000 level. Investors sold big Tech names after they moved in sync over the weekend block US President Donald Trump’s avenues of communication; Twitter (-6.4%), Facebook (-4.0%) and a slew of other social media giants moved to block the President’s personal accounts, while Apple (-2.3%), Alphabet (-2.3%) and Amazon (-2.15%) moved against the most prominent free-speech alternative to Twitter, a platform called Parler (which is already hugely popular with Conservatives who feel maligned on the traditional social media platforms). The former two removed the ability of iPhone and Android users to download the Parler app, while the latter abruptly threw Parler off of its cloud computing service called Amazon Web Services (AWS). Parler has already filed an anti-trust lawsuit against Amazon.

Given the size of the Trump base that is likely to have been alienated by the decision to ban their leader, Monday’s sell-off perhaps reflects investor concerns that the major big Tech names have exposed themselves as partisan, opening the possibility that a “conservative rival” might emerge a steal a decent portion of their market share (an argument most relevant for Facebook and Twitter). Perhaps this explains the swift move by Apple, Alphabet and Amazon to “takedown” Parler.

Others have argued that the downside in big Tech stocks might be in anticipation of greater regulatory scrutiny from Congress over the coming two years, though the decision to block the US President did seem to please many Democrats and might actually end up placating their desire to regulate the big Tech names.    

Elsewhere, Tesla had its worst day in months, dropping 7.8% and adding to the Nasdaq 100’s woes.