The tech market appears to be stalling out confronting uncertainty on a host of fronts, but investors betting on one theme—the unfolding economic recovery—appear positive.

What is certainly uncertain is that elections, brazen geopolitics, healthcare bills, inflation, forbearance, natural disasters are piling up like a dirty laundry basket of heightened risk.

Cyclical outperformance has been the catchphrase since the start of September, and the establishment on Wall Street has been barking for a rotation in market leadership from mega-cap tech.

As much as I love the business models of Apple, Google, Amazon, Microsoft, and Netflix, they have come too far — too fast.

We are currently smack dab in an economic phase where growth stocks won’t perform like they did when the broader economy was humming along just before March and the shelter-at-home trade has faded away from its initial boost.

There are knock-on effects and big tech doesn’t just live in a silo which is why investors are searching for reasons to take tech higher.

That being said, big tech did harvest the lions’ share of the gains from March until the end of August and in relative terms, they have emerged the ultimate winners during this health crisis.

Many upper-middle-class families are beginning to feel the economic pinch as well, as the damage is starting to be felt further up the economic food chain.

But these families will still need their tech software and services when they do a cost-benefit analysis and items such as car loans, entertainment, and food delivery will be more likely on the cutting block.

The overextended S&P 500 technology sector has lost 8% in September, while value-oriented materials and industrials have added 6% and 2%, respectively. The overall S&P 500 has declined 4%.

The valuation of the market is arguing for a rotation, not a continued leg up.

In the short term, tech stocks could lose out to U.S. small-caps and specifically small companies with high returns on equity, or ROE.

Low-ROE and nonearning stocks have dominated the Russell 2000’s rebound since late March, as investors focused on revenue growth above all else. That has benefited a lot of software, biotech, and other stocks, but forced investors to pay a high premium.

When the economy is in free fall, many companies have negative sales growth, and the market will favor those who aren’t overvalued.

By my estimation, tech is overvalued in the short-term but still a great long term bet.

Now that the fiscal morphine shot is wearing off, tech appears to be resting while it consolidates while waiting for an “event” to give it more juice.

Some fiscal tools just don’t work now like share buybacks. Management would be tone-deaf to the economic carnage going on in the U.S. — not to mention that tech stocks just visited all-time highs.

The Federal Reserve now sees 4% gross domestic product growth in the U.S. next year, followed by 3% in 2022.

This small-cap rotation will come and go, and once tech gets a little cheaper, the dip will be bought.

As the retracement goes from 20 days to one month, some positive news comes in the form of Walmart and Oracle acquiring parts of TikTok even in a highly diluted form.  

Fortunately, the tech portfolio has been in 100% cash as I sensed the consolidation in time.

We will search for better entry points and will need to be patient.

Whether Russia has actually produced a vaccine or not takes a backseat to the upcoming uncontrollable avalanche of media content about delivering a North American vaccine that news wires will disseminate.

It could be the case that the tide rises all boats in the equity world, but the pathway for a serious rotation into laggards is the more likely case.

Russian President Vladimir Putin claimed Russia has become the first country in the world to grant regulatory approval to a virus vaccine after less than two months of human testing.

Establishing an initial marker for a vaccine being realized is bullish for the overall stock market, but tech stocks might participate less in the rally as the capital is funneled into the catch-up trade.

At the very minimum, tech stocks, short term, are at risk of being slightly discounted to the overall market as the “shelter in place” trade that has benefited the strongest cloud plays has a weaker case than it did before.

Expect a bevy of upcoming announcements from North American and European pharma firms describing their unique pathway to a vaccine.

The European and North American scientific community will not want to be outdone by the Russians.

Don’t forget that the Nasdaq is at market tops and it's normal to have a phase of digestion.

Naturally, the Russian vaccine news has been met with a wave of general skepticism concerning its efficacy.

Putin chose to give a personal anecdote citing his daughter’s involvement with the trials as concrete evidence that she is fully vaccinated from the coronavirus.

The development of the vaccine has been put on an accelerated schedule raising concerns among some experts at the speed of its approval, but the Russian business conglomerate Sistema has said it expects to put it into mass production by the end of the year.

Regulatory approval is the precursor to mass inoculation of the Russian population and the government is desperate to revive the economy after a synchronized health crisis, economic crisis, and oil crisis wrapped into one.

The vaccine will be marketed under the name 'Sputnik V' in foreign markets and is already been offered for sale to other countries.

The jury is still out on this potential vaccine and a larger trial involving thousands of participants, commonly known as a Phase III trial hasn’t started yet meaning the approval is quite premature.

Such trials, which require a certain rate of participants catching the virus to observe the vaccine's effect, are normally considered essential precursors for a vaccine to receive regulatory approval.

“You need a large number of people to be tested before you approve a vaccine,” said Peter Kremsner from the University Hospital in Tübingen, Germany currently testing biopharmaceutical company CureVac's vaccine in clinical trials.

So aside from the uncertainty that this could be a ploy to generate revenue for the Russian state, what does this mean for tech stocks?

A real vaccine that will save people from the dreaded coronavirus would mean the “re-opening trade” is alive and well.

A fake vaccine means rhetoric about finding a vaccine which is also positive for the tech market too.

Capital will rotate into the neglected industries of hospitality, retail, transport, and energy.

It’s been a meteoric rise up in 2020 for cloud, software, and tech’s monopolistic juggernauts.

This was due to happen at some point just like the elevated virus risk will eventually dissipate whether it takes six months, two years or five years.

My base case is that tech will be spared from any major carnage and will be range bound in the short to medium term with few catalysts to take them higher.

Earnings certainly isn’t the force multiplier for tech it once was pre-virus.

This Russian vaccine could be indeed a head fake as well leading to another “buy the dip” moment that is so ingrained in the current psyche.

Portfolio managers have a hard time dumping tech stocks full stop because they are hard to get back into on the next move up.

Not to mention they should already be the cornerstone out of any major portfolio and that the opportunity cost of missing out on tech’s supercharged run-ups will limit any broad-based selling and far outweighs the risk of downside price action.

This wasn’t the greatest news for tech stocks, but it could have been worse.

Ultimately, the secular bull market in tech is as healthy as ever.