A sharp sell off among the world’s largest technology shares sent the US stock market tumbling on Thursday, marking an abrupt change of course for companies that had driven the rally to record highs in recent days.
Apple shares were down more than 6 per cent in mid-morning trading in New York, while Amazon, Alphabet and Microsoft all fell more than 4 per cent. There were even bigger drops for previous superstar stocks including Tesla and Zoom Video Communications.
The tech-heavy Nasdaq was down close to 5 per cent and on course for its worst one day move in more than two months. The wider S&P 500 was down 3.3 per cent, following gains in 11 out of the 13 previous sessions.
Technology stocks have benefited from rampant investor demand in recent months but divided opinion on the sustainability of the rally. That has led to bumper bets in derivatives markets in anticipation of large price swings to come.
Analysts have already begun to warn that the market looked overvalued, particularly given a large share of the recent rally has been due to a relatively narrow group of tech companies.
Bank of America on Wednesday said it expected the S&P 500 to fall more than 8 per cent by the end of this year to 3,250.
Savita Subramanian, an equity analyst at the US bank, said a wide number of risks continue to loom for Wall Street.
“We are not out of the woods, in fact quite the contrary. The months ahead of an election typically see a demonstrable increase in volatility; super accommodative policy is hitting some speed bumps — failure to pass more stimulus, proposed corporate tax hikes . . . pose risks,” she said.
Sophie Huynh, cross asset strategist at Société Générale, said concerns about the upcoming US election were blocking investors from piling into sectors traditionally seen as sensitive to economic fluctuations such as energy, consumer products and industrials — even as US coronavirus cases stabilise and an economic recovery takes hold. First-time jobless claims in the US were below 1m last week, at the lowest level since mid-March.
“Despite the fact that the cyclical rotation has not happened, you could still have a melt up of US equities,” said Ms Huynh, adding that the S&P 500 could rise another 3.5 per cent to reach 3,700 due to “the Goldilocks scenario” of low interest rates along with monetary and fiscal stimulus.
Fahad Kamal, chief investment officer at Kleinwort Hambros, said momentum for equities remained strong despite it becoming increasingly difficult to discern whether tech stocks were fairly valued.
“Throughout history, there have been so many times of people justifying elevated valuations on good reasons but they always tend to lead to poor long-term returns,” he said. But “we also recognise that markets can stay quite exuberant for some time”.
The setback for US equities came after a strong showing for the dollar and the euro weakening after European Central Bank policymakers expressed concern over its recent appreciation.
The dollar added 0.2 per cent on Thursday against a basket of six major currencies, after dropping 8 per cent in just over three months.
The eurozone currency fell 0.2 per cent to $1.1830 on Thursday, following a Financial Times report that several members of the ECB’s governing council had expressed concerns over its rise against the dollar ahead of a monetary policy meeting next week.
The euro’s depreciation boosted European stocks. The continent-wide Stoxx 600 rose 0.6 per cent in afternoon trading on Thursday. A weaker euro helps the bloc’s stocks appear cheaper to outside investors and supports European exports.
France’s CAC 40 rallied 1.6 per cent on the day that Paris launches its €100bn fiscal spending plan. London’s FTSE 100 added 0.4 per cent, with buyout specialists Melrose Industries rising almost 14 per cent.
The stronger dollar weighed on commodities. Brent crude, the international oil price benchmark, fell 1.9 per cent to less than $44 a barrel.
In the Asia-Pacific region, stocks were mixed after data indicated that activity in China’s services sector increased again in August.
China’s CSI 300 and Hong Kong’s Hang Seng index trailed the rest of the region, falling about 0.5 per cent. Japan’s Topix index climbed 0.5 per cent, while South Korea’s Kospi was up 1.3 per cent.