Nasdaq slides as tech rout deepens, Tesla hits three-week low
The Nasdaq tumbled on Tuesday as a sell-off in high-flying technology stocks extended to a third straight day, while Tesla tracked its worst day in nearly six months after investors were caught off guard by the stock being left out of the S&P 500.
All eleven major S&P sectors were down, with declines worsening after news on Friday that SoftBank made significant option purchases during the run-up in U.S. stocks.
Energy, financial and information technology stocks were among the biggest decliners.
“To see a period of carnage is reasonable, considering the massive run up that we have experienced since the early part of the year,” said Eric Schiffer, chief executive officer of private equity firm Patriarch Organization in Beverly Hills, California.
“We’ll need some time to see whether this is a fundamental shift versus a technical on exhibit, because if it is a shift to fundamentals, that is not a position where you’re going to want to necessarily buy a dip.”
Media reports of SoftBank’s option purchases also reminded investors that market makers might have billions of dollars worth of long positions as hedges against options trades, which will have to be sold as prices fall. “If you bought a lot of call options in the second quarter, you’re doing very well, but that creates a problem for later when you need to unwind these positions,” said Ken Peng, Citi Private Bank’s head of Asia Investment Strategy.
Wall Street’s tech-and-stimulus-led rally halted last week with the Nasdaq falling as much as 9.9% from its record closing high as investors booked profits after a run that boosted the index about 70% from its pandemic-lows.
At session lows on Tuesday, Facebook, Amazon.com, Apple, Tesla, Microsoft, Alphabet and Netflix - which are increasingly being referred to as “FAATMAN” - had collectively lost more than $1 trillion in market capitalization since Sept. 2.
Tesla plunged another 15.5% to a three-week low as the electric-car maker was excluded from a group of companies being added to the S&P 500. Investors had widely expected its inclusion after a blockbuster quarterly earnings report in July. Up to Friday’s close, the stock had surged about 400% this year.
At 12:28 p.m. ET, the Dow Jones Industrial Average was down 414.98 points, or 1.48%, at 27,718.33, the S&P 500 was down 64.73 points, or 1.89%, at 3,362.23, and the Nasdaq Composite was down 305.36 points, or 2.70%, at 11,007.77.