What's going on?

It was an unusual Wednesday on Wall Street as tech stocks sold off sharply and more traditional companies, like banks and manufacturers, shot higher. This followed a report that showed the US economy grew at its fastest pace in three years in the most recent quarter!

What does this mean?

Usually stronger growth is good news for stocks � and it did appear to help banks and other big, broad companies whose health is closely tied to overall growth (e.g. telecoms, manufacturers). As economic activity increases, businesses tend to borrow more money (helping banks) and buy more equipment (helping many other companies).


Yet tech stocks, including the likes of Facebook (-4% on Wednesday) and chipmaker Nvidia (-6%) fell sharply on Wednesday. The catalyst for the selloff wasn�t entirely clear � but whatever the cause, it was the third-worst day for tech stocks this year.

Why should I care?

For markets: Investors rotated their exposure to stocks.

In recent years, tech stocks have performed much better than most older, established companies (in Wall Street terms, �growth� stocks have outperformed �value� stocks). On Wednesday, the exact opposite occurred � investor demand for stocks overall didn�t wane (stocks, on the whole, were unchanged), but investors rotated out of high-growth tech stocks and into traditional companies (like Verizon and Bank of America), sending their stock prices up.


The bigger picture: The increasing likelihood of corporate tax cuts is also helping stocks.

The Senate�s tax bill appears to be moving towards a vote either today or Friday (it would then have to be reconciled with the House bill, so it�s still far from a done deal). Tax cuts for businesses typically mean more profit, which is good for stock prices � although they may not benefit tech companies as much, since their tax rates are already lower than most other companies�.