MANHATTAN (CN) — Investors hoping to put last week’s rout behind them were disappointed on Tuesday, as falling tech stocks dragged major indices down.
By the closing bell, the Dow Jones Industrial Average lost 631 points, a 2.25% decrease, while the S&P 500 and Nasdaq declined about 2.8% and 4.1%, respectively.
After helping the Nasdaq and S&P 500 soar to new heights this summer, Big Tech has recently become an albatross around investors’ necks.
Shares of Amazon fell about 4.4% for the day, while Apple declined 6.7%, Twitter lost 4.2%, and Facebook took a 4% hit. Tesla, which for months had been the darling of Wall Street, did even worse, plummeting 21% due to the decision by the S&P 500 last week to exclude it from the index.
With markets closed on Monday for the Labor Day holiday, the sell-off was a continuation of last week’s carnage.
The Dow Jones Industrial Average tanked on Thursday, suffering first an 808-point loss, then finished off the week by shedding another 159 points on Friday. The Nasdaq had a similar path, falling almost 600 points on Thursday and losing another 145 points by Friday’s closing bell. All told, the S&P 500 lost about 150 points between those two days.
Thursday was the worst day for the markets since the beginning of the summer and wiped out the Nasdaq’s record high.
There doesn’t seem to be one factor causing the recent sell-off, however.
Analysts at Goldman Sachs wrote that losses among Big Tech were “likely due to the unwinding of some of the popular positions into the largest U.S. stocks,” but also noted that the investment bank’s equity strategists “expect the current bull market to continue as the improved growth outlook, coupled with supportive monetary policies, should maintain the search for yield.”
Some analysts blamed the rising tensions between the Trump administration and China. On Labor Day, President Trump said the United States was “decoupling” its economy from the Communist nation and again mentioned tariffs, a scary word for many on Wall Street.
“Whether it’s decoupling, or putting in massive tariffs like I’ve been going already, we will end our reliance on China, because we can’t rely on China,” Trump said.
Increased tensions between the two countries has taken its toll on markets, such as when China threatened the autonomy of Hong Kong and White House officials increasingly blamed China for the Covid-19 pandemic. But the newest bump in the road for the two countries could accelerate problems on Wall Street.
“With tech companies responsible for nearly all of the rally in the U.S. equity indices, the new flare-up in Sino-U.S. relations could turn the recent correction in Nasdaq into an avalanche of selling as investors panic and being to dump the very high-valued stocks,” wrote Boris Schlossberg of BK Asset Management in a note.
Others think the recent market correction will be a short-term event. “Even if the Nasdaq keeps peeling lower, this may be viewed as idiosyncratic Nasdaq repricing, not a global macro event,” Stephen Innes, chief global market strategist at AXI Trader, wrote on Monday.
Renewed talks in Congress on a fourth stimulus package may assuage some of the economic woes.
Over the weekend, Treasury Secretary Steven Mnuchin held another round of talks with Senate and House Democrats, with some reports pegging the next stimulus proposal at a $1.5 trillion price tag.
As the election approaches, however, the possibility of a compromise between Democrats and Republicans seems to slim.
In a statement Tuesday morning, Senate Majority Leader Mitch McConnell wrote the Senate would hold a vote on further Covid-19 relief later this week but warned Democrats could scuttle any chance of it passing. “Every action has suggested [Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer] simply do not want families to get any more bipartisan help before the election,” McConnell tweeted.
Schumer and Pelosi both stated that Republicans should work with the bill House Democrats had already passed. “We must pass the HEROES Act. Immediately,” Schumer tweeted.
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