US open: Wall Street dips as selling in tech carries over

Wall Street's main market gauges were slightly lower at the start of the week on follow-through selling in the tech space.

At 1618 BST, the Dow Jones Industrial Average was drifting lower by 0.18% or 37.85 points to 21,235.12, while the S&P 500 was down by 0.20% or 4.86 points at 2,426.87 and the Nasdaq Composite was retreating by 0.53% or 33.10 points to 6,176.82.

On Friday, the Nasdaq slumped 1.8%, dragged lower by a note from Goldman Sachs which highlighted a "valuation air pocket" in the tech sector and on Monday it was off by a further 0.72% to 5,700.82.

"Driven by the rise of megatech, momentum, as a factor, has built a valuation air pocket underneath it creating cause for pause."

It added: "Our view is that FAAMG - Facebook, Amazon.com, Apple, Microsoft and Alphabet - a group of five stocks, not four - have been the key drivers of both the (S&P 500 and Nasdaq 100) returns year-to date."

On a related note, at the beginning of the week strategists at JP Morgan said that while superficially US cyclicals were "holding up better on the surface", that was mostly due to technology stocks.

"We note that Healthcare, Utilities and Staples are all outperformers in the US ytd, along with Tech, so the internal rotation is
evident even there. US Banks are losing 500bp vs the market. Therefore, the question is should one use the weakness in Cyclicals to add back?" JP Morgan said.

The problem however was that stocks were doing exactly what they should be expected to do given how bond yields remained stuck in a range and the yield curve had flattened significantly.

There were no major data releases scheduled for Monday, with investors looking out instead to Wednesday's rate announcement from the Federal Reserve amid expectations of this year's second rate hike.

IG analyst Joshua Mahony said; "Given the USD weakness we have seen in the face of such rate hike expectations, it makes you wonder what would happen in the event that the Fed chose not to act this time around."

Rate-setters in Washington DC were widely expected to hike the Fed funds rate by 25 basis points to between 1.0% and 1.25%.

Over in currency markets, the dollar was up 0.5% versus the pound, which took another leg lower after Moody's warned over the impact of a hung parliament, as Prime Minister Theresa May prepared to meet with Conservative party backbenchers angered by the election result.

In corporate news, technology giant Apple was down 2.4% after Mizuho Securities cut its stance on the stock to 'neutral' from 'buy'.

Stock in another tech giant, chip-maker Nvidia, was bouncing back by 1%.