U.S. stocks fell sharply on Thursday as investors began to question the valuation of highflying technology shares and buying ran out of momentum, dragging the rest of the market lower.
How are equity indexes performing?
The Dow Jones Industrial Average (DJIA)(DJIA)was off 898.39 points, or 3.1%, at 28,202.11, and was down more than 1,000 points at its session low. The S&P 500 (SPX) dropped 137.87 points, or 3.9%, to 3,442.97. The Nasdaq Composite (COMP) tumbled 651.86 points, or 5.4%, to 11,404.59.All three indexes are on track to record losses for the week.
On Wednesday, the Dow surged 454.84 points, or 1.6%, ending at 29,100.50, or 1.5% away from its Feb. 12 closing high of 29,551.42. The S&P 500 index climbed 54.19 points, or 1.5%, to settle at a record 3,580.84, its 22nd record close this year. The Nasdaq Composite Index advanced 116.78 points to close at a record 12,056.44, a gain of 1%, and its 43rd record close of the year.
What’s driving the market?
Large-capitalization technology-related stocks led losses on Thursday after another round of records for the S&P 500 and the Nasdaq Composite on Wednesday,
In One Chart: Tech stocks and the rest of the market are both very expensive — but for very different reasons
“Tech stocks, and the overall market, hadn’t really had a bad day since June, so this is a healthy breather. It was never just going to be a straight line up. But the long-term structural support for technology has not changed and support for equities has not either,” said Esty Dwek, head of global macro strategy for Natixis Investment Managers, in emailed comments.
Doubts about traction for further fiscal stimulus from Washington lawmakers may be one factor discouraging investors who have been betting on Republicans and Democrats striking a deal later this month to offer additional relief to American consumers and businesses. On Tuesday, House Speaker Nancy Pelosi said Democrats and Republicans still have “serious differences,” following a brief phone call with Treasury Secretary Steven Mnuchin, reports said.
Investors have also been calling for a rotation away from the leading tech stocks to the broader market in the hopes that it would strengthen the stock-market rally’s foundations.
“There is a sort of benign way that this excess can be corrected through a process of rotation,” said Liz Ann Sonders, chief investment strategist at Schwab, in an interview. She said positive economic data could lay the path for a more sustainable rally.
Thursday’s round of economic data continued to point to a steady recovery, though the prospects for the labor market were unclear ahead of Friday’s official jobs report.
New applications for unemployment benefits in the latest weekly period ending in Aug. 29 fell 130,000 to a seasonally adjusted 881,000 or lower than the consensus estimate of 940,000 but this was after the Labor Department said last week it tweaked its seasonal adjustment method amid the COVID-19 pandemic. The unadjusted or real number of initial jobless claims rose slightly to 833,353 from 825,761, indicating there was barely any change last week in how many people are applying for benefits.
In other data, a revised reading of U.S. second-quarter productivity rose 10.1%, while the trade deficit widened to $63.6 billion.
The U.S. IHS Markit final purchasing managers index for the service sector for August was 55, up from 54.8 in July, while the Institute of Supply Management’s service sector indicator for August fell to 56.9 in August from 58.1 in July. Any number above 50 indicates an expansion in industrial activity.
By most measures, the economy is still considerably weaker now than it was before the pandemic. Millions of Americans remain out of work, Congress is deadlocked over another financial-aid package, and many industries such as travel, tourism and entertainment are just a shell of their former selves.
Read: U.S. likely added 1.2 million job in August, economists say, but hiring has slowed
Which stocks are in focus?
- Apple Inc. (AAPL) shares fell more than 7.8% and were on pace for their worst day since March 16, when the plunged 12.9%.
- Facebook (FB) shares slipped 4.6a% after announcing it would ban new political ads from running in the week before the Nov. 3 presidential election.
- Michaels Cos. Inc. shares (MIK) tumbled 13%, even after the arts and crafts retailer blew past estimates for the second quarter as stores reopened after being closed during the pandemic.
- Shares of Sanofi (SNY)were down 1.4% after the drugmaker and GlaxoSmithKline (GSK) said their COVID-19 vaccine candidate has entered a Phase 1/2 clinical trial.
- Arconic Corp. (ARNC) said Thursday it restored the salaries and 401K match for all of its U.S. salaried employees, including executives, on Sept. 1, after cutting them earlier this year to counter the impact of the coronavirus pandemic. Its shares were down 3.1%.
- Shares of Designer Brands Inc. (DBI)plummeted 19%, after the parent of the DSW Designer Shoe Warehouse retail chain reported a wider-than-expected fiscal second quarter
How are other markets trading?
The 10-year Treasury note yield (BX:TMUBMUSD10Y) fell 1.6 basis points to 0.627%. Bond prices move inversely to yields.
The ICE U.S. Dollar Index (DXY) which tracks the performance of the greenback against its major rivals, was down 0.1%.
Gold futures (GCZ20) ended lower. U.S. benchmark crude futures (CL) ended lower.
The Stoxx Europe 600 index (XX:SXXP) declined 1.4%, while the U.K.’s benchmark FTSE (FR:UKX) lost 1.5%. In Asia, Hong Kong’s Hang Seng Index (HK:HSI) fell 0.5% and China’s CSI 300 (XX:000300) closed 0.6% lower. The Nikkei (JP:NIK) rose 0.9%.
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