Wall Street’s summer-long party fueled by investors’ appetite for some of the world’s best-known technology companies has come to an abrupt, if not entirely unexpected, halt.
The sharp sell-off that began last Thursday has wiped out nearly 7.1% from the S&P 500 as of Tuesday, its first three-day skid in nearly three months.
The Nasdaq composite, home to Apple, Amazon, Zoom, Tesla and many other tech stocks that led the market’s remarkable five-month comeback from its lows in March, has lost more than 10% after setting an all-time high just four days ago — a decline known in the market as a correction.
Call the last three trading sessions a reality check after what many analysts say was an overdone push by traders into technology companies, especially in August.
“The bottom line is that this correction was long overdue and likely has more downside over the next few weeks (and) months as these positions are cleared out,” Morgan Stanley analysts wrote in a research note Tuesday, noting technology stocks had a “parabolic move” last month. Tech stocks jumped 11.8% in August, the sector’s best month since a 13.7% surge in April.
Investors’ craving for technology companies was fueled by low interest rates, customers stuck at home while the pandemic raged, and efforts by the U.S. government to support out-of-work Americans. An improving outlook for corporate profits has also kept traders in a buying mood.
Wall Street also got a big boost from the Federal Reserve, which has taken unprecedented actions to keep markets running smoothly and also encourage borrowing by keeping interest rates extremely low. Meanwhile, a surge in trading in options contracts, which give investors the right to buy or sell hundreds of thousands of shares of stock at a time, also turbocharged the gains.
Between March 23 and Sept. 2, the Nasdaq jumped 75% while outpacing the S&P 500′s 60% gain and the Dow industrials’ 56.5% rally during the stock market’s rebound from its pandemic lows. During the run Apple became the first $2 trillion U.S. company and Zoom itself became worth more than General Motors and Ford Motor Co. combined.