Traders See Signs Of Rotation Into Financials Amid Nasdaq's Worst Day In Months

High-flying tech stocks were hammered Wednesday, sending the Technology Select Sector SPDR Fund (NYSE: XLK) down more than 2.5 percent and the Nasdaq down 1.4 percent, its worst day of trading since August 17.

Despite the bloodbath in the tech sector, the Dow Jones Industrial Average was trading higher by 0.2 percent, leading some traders to speculate that Wednesday’s trading action is more of a rotation than a sell-off. The Dow was boosted by a major surge in bank stocks that drove the Financial Select Sector SPDR Fund (NYSE: XLF) higher by 1.8 percent.

At least on Wednesday, money seems to be flowing out of the technology sector and into the financial sector.

What Is Sector Rotation?

These types of sector rotations often occur when investors believe economic conditions will favor one type of business over another. Tech stocks have been on fire in recent years, but the potential for tax cuts, rising interest rates and deregulation may put financial stocks at the top of trader’s holiday shopping lists this year.

Winners And Losers

As a result of the potential rotation, some of the top tech performers of 2017 are feeling some major pain on Wednesday:

• Facebook Inc (NASDAQ: FB) was down 4.2 percent.
• Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) was down 3.0 percent.
• Apple Inc. (NASDAQ: AAPL) was down 3.3 percent.
• Amazon.com, Inc. (NASDAQ: AMZN) was down 3.9 percent.
• Micron Technology, Inc. (NASDAQ: MU) was down 8.6 percent.
• NVIDIA Corporation (NASDAQ: NVDA) was down 8.4 percent.
• Netflix, Inc. (NASDAQ: NFLX) was down 6.5 percent.

At the same time, big banks stocks are demonstrating major strength:

• Bank of America Corp (NYSE: BAC) is up 2.0 percent.
• JPMorgan Chase & Co. (NYSE: JPM) is up 2.1 percent.
• Goldman Sachs Group Inc (NYSE: GS) is up 1.4 percent.
• Wells Fargo & Co (NYSE: WFC) is up 1.8 percent.

What To Make Of The Action

Tech investors are feeling the pain on Wednesday, but some see a potential sector rotation as a positive sign of a healthy bull market.

Ppl talk bubbles.$NVDA crushes earnings, raises guidance, price down from there.$AAPL $AMZN $FB $GOOGL $NFLX, $QQQ all down today.

Good. This isn't bubble action, this is normalcy.

Rotate to financials? Also normal.

Today is most bullish I have felt in a while.

— Ophir Gottlieb (@OphirGottlieb) November 29, 2017

Ritholtz Wealth Management director of research Michael Batnick pointed out the mind-blowing gains that the so-called FAANG stocks have produced in a very well-timed blog post on Tuesday. Batnick noted that the five FAANG stocks added more than $900 billion in total market cap in the first 11 months of the year.

“This doesn’t have to end tomorrow, but it can’t continue like this forever,” Batnick wrote. “Enjoy it while it lasts because nothing about this is normal.”

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