The Dow Dropped Because Investors Can’t Make Their Minds Up About the Rotation

And just like that, tech stocks are underperforming again. Except, maybe not.

It was a lousy day for the stock market, but it was lousier for some stocks than others. The Dow Jones Industrial Average declined 165.81 points, or 0.6%, while the S&P 500 declined 0.7%, and the Nasdaq Composite fell 0.8%.

That would appear to suggest that tech and communication services stocks did poorly—and some certainly did. Netflix (NFLX), for instance, dropped 2.3%, while Facebook (FB) fell 1.6%, and Microsoft declined 0.9%. Energy stocks, on the other hand, did particularly well thanks to reports that ConocoPhillips (COP) was in talks to buy Concho Resources (CX). Materials and industrials also did well.

But all was not quite as it seemed, observes Instinet’s Frank Cappelleri. The Energy Select Sector SPDR ETF (XLE) finished the day up 0.4%, but its peak came at 11:30 a.m., when it was up 2.8%. The Technology Select Sector SPDR ETF (XLK), on the other hand, dropped 0.5% on Wednesday, but was down as much as 1.3% at around 12:30 p.m.”The XLE failed to breakout,” Cappelleri writes. “Like many others, the XLK now has consolidated its strong move the last two sessions.”

In other words, investors can’t decide if they’re rotating or not. As a result, the Dow has now dropped for two days in a row, and people are asking why. Reasons are being given. It’s bad earnings (though the vast majority of companies are beating forecasts)! It’s the lack of a stimulus package! It’s the election! It’s the continued spread of Covid-19! No, silly, it’s all of the above!

The market is trying to figure things out. So are investors. Stuff goes up. Stuff goes down. We call this churn.

There doesn’t have to be a reason.

Write to Ben Levisohn at Ben.Levisohn@barrons.com