Nasdaq Tumbles 3.5% in Worst Day Since October

26 Feb 2021 · 3rd Party Analysis

WRITTEN BY ThorFX

In Summary

  • Major US indexes decline on Thursday as bond yields rise
  • US futures remain pressured ahead of Friday trading

Tech stocks slid on Thursday in their biggest one-day loss since October as the 10-year Treasury yield rose above 1.5%. The aggressive sell-off in government bonds is reflected in investors’ sentiment towards the broader markets. Main indexes moved substantially lower as fears spread that the market is overpriced. The sharp move pushed the tech-heavy Nasdaq Composite Index 3.5%, or 478 points to a close of 13,119, its worst day since late October. The S&P500 slipped 2.45%, or 96.09 points, and closed at 3,829. The Dow Jones Industrial Average declined by 1.75%, or 559 points, and closed at 31,402.

The buying momentum in stocks has faltered this week as global investors became increasingly concerned about rising inflation as well as a rise in interest rates. The quick pick-up in bond yields is a sign that the market expects the economy to recover. However, the sharpness of the move in yields has tempered enthusiasm for a richer valuation of the riskier assets in the market.

Some of the biggest companies that got jolted yesterday include Apple, Netflix, and Alphabet, down more than 2% each. Tesla shares dropped 8%, nearly $60, and closed the session at $682.22. The drop in Tesla stock cost its CEO Elon Musk a loss of $13.6bn. During the early hours of trading, cheaper sectors of the market appeared to keep steady but as the day progressed, bank stocks and energy producers also got shaken while investors were rushing out and seeking safety.

Investors Eye Real Economy Stocks

The Dow Jones Industrial Average made a new record high just one day before the massive sell-off occurred. On Wednesday, the index rallied nearly 425 points, or 1.4%, and closed at a record 31,961.86, while the S&P500 rose 1.1% and the Nasdaq climbed 1%. The drop in the Dow Jones on Thursday was the biggest daily point and percentage drop since Jan 29. S&P’s slip by 2.5% was its worst one-day decline in over three weeks.

Investors have recently been rotating to more real-economy and cyclical stocks, which added more downside pressure for growth stocks that were highly favored during the pandemic period when the majority of the world was locked down. Now that the global economy is set to open, a positive outlook suggests a recovery in sectors that were hit the heaviest last year.

Meanwhile, the latest weekly report of people seeking unemployment benefits dropped 111,000 to 730,000 in the week of Feb 20. The positive reading was better than expected but still, the most important economic gauge, nonfarm payrolls, will show how the jobs market performed in February. The nonfarm payrolls and the unemployment rate are set to be announced on Friday, next week. In January, the US economy added 49,000 new jobs while unemployment slipped to 6.3%.

US equity futures remain under pressure with the Nasdaq Composite pointing to a drop over 0.50% when the trading session begins on Friday. The Dow Jones and the S&P500 are also negative, down by about 0.30% each in pre-market trading.

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