What’s happening: US stocks closed sharply lower on Wednesday, with FAANG stocks (Facebook, Apple, Amazon, Netflix, Google parent Alphabet) leading the selloff.
What happened: While investors feared for the economic outlook due to the pandemic-induced loss of business, tech stocks came to the rescue, with the FAANG stocks achieving new record highs in recent months.
Shares of the world’s largest tech companies have been under pressure, however, in the generally tough September month, analysts termed the stocks as grossly overvalued. Following the bloodbath over the past three trading session, these stocks are on course to record the worst September in 18 years and the first monthly loss since March.
Why it matters: While the correction in tech stocks was largely anticipated, given their sharp rally over the past few months, the selloff was also triggered by prospects of lockdowns across Europe in the face of a resurgence in covid-19 cases.
Market sentiment was further hit by reports of the Justice Department looking to submit a proposal Congress to curb legal protections being offered to internet-related firms, in a bid to push them to be more responsible for the content that appears on their platforms.
Equities started the day slightly higher but came under pressure later in the session following lack of progress in talks over the US government’s pandemic aid package and a spike in covid-19 cases in Europe and some parts of the US.
The Nasdaq 100 nosedived 3% to close at 10,632.99 on Wednesday, following a 1.7% rise in the previous session. The tech-laden index is down 11.8% from its record high achieved earlier in September.
The Dow Jones shed 525.05 points to settle at 26,763.13, while the S&P 500 declined 2.4% to 3,236.92.
Facebook’s stock fell 2.3%, while shares of Apple, Amazon and Netflix lost more than 4% each. Alphabet’s stock declined by 3.5%. Apart from the FAANG stocks, other tech giants including Nvidia and Zoom Video Communications also saw their share price plummet. Tesla’s shares tumbled more than 10% after the company failed to impress investors at its Battery Day event.
Nike’s stock bucked the general trend, climbing around 9% after the company reported stronger-than-expected results for the latest quarter.
What to watch: Markets await a basket of economic reports from the US, including initial jobless claims, new home sales and Kansas City Fed's manufacturing production index. Initial claims are expected to decline to 840,000 in the latest week, from last week’s 860,000 figure. New home sales, which jumped 13.9% in July, are projected to decline 0.1% to 895,000 in August.
Coronavirus continues to remain a major concern for investors, with the number of infections approaching the 7 million mark in the US, with more than 200,000 deaths.