Tech rout deepens, Nasdaq set for worst two-day fall since March

NEW YORK (Reuters) – The Nasdaq was on track for its worst two-day fall since mid-March on Friday as investors dumped heavyweight technology stocks, while concerns around a patchy economic recovery also hit the S&P 500 and the blue-chip Dow.

The tech-heavy Nasdaq fell as much as 9.9% from its record high reached on Wednesday and the S&P 500 dipped briefly below its pre-crisis record, reached in February, although both indexes were last trading above their session lows.

Mega-cap companies Apple Inc, Microsoft Inc, Inc and Facebook Inc were down between 0.3% and 4%.

While Thursday’s sell-off already reflected investor fears that valuations for Nasdaq high-flyers had overheated, the worries were exacerbated on Friday by the Financial Times (FT) and others reporting that options trading by Japan’s Softbank had inflated these stocks.

“We’ve started to see signs of weakness in the last few days, notably yesterday. Then you get a headline like the FT story. That really adds fuel to the fire on the downside,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab in Boston.

Nasdaq had powered the stock market’s stellar recovery from the coronavirus-led crash, climbing as much as 82% from March lows while the benchmark S&P 500 and Dow had surged about 60% from their troughs. The last time the Nasdaq had a deeper two-day plunge was around March 17.

Earlier on Friday, the Labor Department’s closely watched employment report showed the jobless rate improved to 8.4% from 10.2% in July, better than analysts had anticipated. Nonfarm payrolls, however, increased less than expected last month.

Kleintop argued that the jobs news did little to help the progress of stalled talks for a fresh coronavirus stimulus package among sharply divided lawmakers in Washington.

“It wasn’t wonderful enough to get the market excited enough that we don’t need any more stimulus. On the other hand it wasn’t weak enough to bring the two sides in Washington together to extend that stimulus package,” he said.

At 3:01 p.m. EDT, the Dow Jones Industrial Average was down 45.69 points, or 0.16%, at 28,247.04, the S&P 500 lost 16.32 points, or 0.47%, to 3,438.74 and the Nasdaq Composite dropped 116.73 points, or 1.02%, to 11,341.37.

Technology, communication services and consumer discretionary indexes posted the steepest percentage declines among the 11 major S&P sectors.

Value stocks, which have underperformed so far this year, were outperforming on Friday with the S&P bank index up 1.7% and the S&P 1500 airlines index up 1.6%. While the bank index has fallen more than 30% so far this year the airline index was down 42% year-to-date.

“There are segments of the cyclical trade that you might be starting to see some rotation in to, but I don’t think it’s the big picture value-growth trade reversal yet,” said Jack Janasiewicz, portfolio strategist at Natixis Investment Managers.

Fund managers warned Thursday’s declines may be a preview of a rocky two months ahead as institutional investors return from summer vacations and refocus on potential economic pitfalls.

The run-up to the Nov. 3 U.S. presidential election is also expected to add to the volatility.

Wall Street’s fear gauge, after hitting a more than 11-week high in late morning trading, was last down about 2 points at 30.31.

Broadcom Inc gained 4.3% after the Apple Inc supplier forecast fourth-quarter revenue above analysts’ estimates.

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Declining issues outnumbered advancing ones on the NYSE by a 1.79-to-1 ratio; on Nasdaq, a 2.16-to-1 ratio favored decliners.

The S&P 500 posted no new 52-week highs and 1 new low; the Nasdaq Composite recorded 21 new highs and 87 new lows.

(This story corrects VIX index in paragraph 16 to “was last down about 2 points at 30.31” instead of “last down 93 points at 32.67.”)

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