High-flying tech stocks falter again while Tesla shares plunge

Wall Street’s romance with large United States technology companies continued to show signs of souring on Tuesday, with all three major US indexes ending the day in the red, while Elon Musk’s Tesla suffered its worst one-day percentage drop ever after a surprise snub by the S&P 500 index.

The Nasdaq Composite index finished Tuesday’s session down 4.1 percent at 10,847.69. Over the past three days, the tech-heavy index has lost 10 percent from its recent peak, landing it officially in “correction” territory.

The S&P 500 – a proxy for the performance of US college and retirement savings accounts – also felt the bitter sting of investors running cold on tech shares, closing down 2.78 percent at 3,331.84.

The Dow Jones Industrial Average finished the day down 2.25 percent at 27,500.89.

Technology stocks have powered the astounding rebound in US stock markets since the major indexes bottomed out in March as coronavirus lockdowns swept the nation, griding entire swaths of the economy to a halt.

To put the Herculean role that big technology names have played into perspective, the S&P 500 had returned 11 percent for the year to date as of September 1, according to an analysis by Goldman Sachs. But the index’s five largest stocks – Facebook, Amazon, Apple, Microsoft and Google parent Alphabet, had returned 59 percent year to date, while the index’s 495 other component companies returned only one percent.

That has squeezed “market breadth” – the number of shares participating in the index’s moves – to its narrowest level in 20 years.

As Goldman noted: “Sharp declines in market breadth have typically signalled large downturns.”

While many industries have seen their revenues hammered by the coronavirus pandemic, technology companies have proven well-positioned to benefit from the shift to remote work and changing consumer habits triggered by coronavirus containment measures.

But many market watchers have fretted that this year’s rally in tech shares has been overblown.

Shares of Facebook lost just over 4 percent on Tuesday. Apple shares lost 6.72 percent. Shares of Amazon finished the session down 4.39 percent. Alphabet shares lost 3.64 percent on the day, while Microsoft ended down 5.4 percent.

Another of this year’s high-flying stocks that found itself channelling the mythical Icarus flying too the close to the sun was Tesla.

Shares of Elon Musk’s electric car maker lost more than 21 percent on Tuesday – its worst one-day percentage drop ever – after it dashed widely held expectations by failing to be included in the S&P 500 index.

Investors had piled into Tesla shares believing it would be added to the benchmark index and reap the benefits of inflows from passive investors.

Bucking the red trend on Tuesday were shares of General Motors and Nikola Corp after GM said it was taking an 11 percent stake in the electric truck startup.

Shares of General Motors finished up 7.93 percent while Nikola shares skyrocketed 40.78 percent.

Market participants are keeping a close eye on Capitol Hill, where legislators have yet to agree on a new round of virus relief aid. And with the US presidential race entering its final stretch, President Donald Trump is ratcheting up the anti-China rhetoric.

On Monday, Trump told reporters “we’re going to end our reliance on China” and threatened to bar US firms that create jobs overseas or that do business with China from winning federal contracts.