Growth stocks drag market lower amid profit taking
The mega-cap/growth/technology stocks are getting hit by profit-taking interest today, with some of the money rotating into large-cap cyclical stocks. The S&P 500 is down 1.3%, while the Nasdaq Composite (-2.8%) underperforms with a 2.8% decline. The Dow Jones Industrial Average is down 0.5%. Accordingly, the S&P 500 information technology (-2.7%), communication services (-2.1%), and consumer discretionary (-2.2%) are leading the retreat and include sharp losses in Apple (AAPL 127.06, -5.48, -4.1%), Amazon (AMZN 3278.06, -108.43, -3.2%), and Alphabet (GOOG 2316.51, -78.66, -3.2%). Conversely, the financials (+0.3%), energy (+0.2%), and materials (+0.3%) sectors are trading slightly higher after trading lower earlier today. This group of stocks might be benefiting from an observation from Treasury Secretary Yellen that interest rates may need to keep rising to prevent the economy from overheating. The inference is that Ms. Yellen thinks economic growth is still going strong, but the comment also appears to be a softer stance from a prior view that inflation wouldn't be an issue under increased government spending. In addition, the prospect of higher interest rates in this policy-driven environment should weigh on the valuations of growth stocks, yet interest rates are trading lower right now.The 10-yr yield is down three basis points to 1.58% amid defensive-oriented buying interest. Others have made the case that the increased demand in the Treasury market supports the peak growth narrative in which growth rates are expected to slow down in the second half of the year. It should also be noted that growth stocks were underperforming way before Treasury Secretary Yellen posited this view at a seminar presented by The Atlantic, suggesting that profit-taking interest was already at play. The S&P 500 gained 5.2% in April, while the Nasdaq Composite gained 5.4%. Separately, shares of CVS Health (CVS 80.76, +3.08, +4.0%) are up 4% after the company beat top and bottom-line estimates and issued upbeat FY21 EPS guidance. Pfizer (PFE 39.74, -0.10, -0.2%) did the same, but shares are trading lower. Reviewing today's economic data:The U.S. trade deficit widened to $74.4 billion in March (Briefing.com consensus -$74.7 billion) from an upwardly revised $70.5 billion (from -$71.1 billion) in February, with exports increasing by $12.4 billion to $200.0 billion and imports increasing by $16.4 billion to $274.5 billion.The key takeaway from the report is that both exports and imports increased sharply, which is a telltale sign of increased demand. Importantly, it was exports and imports of both industrial supplies and materials and consumer goods that paced the pickup in trade activity, speaking to the uptick in demand seen for businesses and consumers alike.Factory orders for manufactured goods increased 1.1% m/m in March (Briefing.com consensus 0.7%) after decreasing an upwardly revised 0.5% (from -0.7%) in February. Shipments of manufactured goods were up 2.1% after declining 1.9% in February.The key takeaway from the report is that it suggests the recovery blip in February was largely a function of extreme winter weather and some natural slowing after a long streak of gains in factory orders. The report also demonstrates that demand for manufactured goods was quick to rebound.