Tech Stocks Sell Off, Nasdaq Tumbles 2.5%, Futures Lower

11 May 2021 · 3rd Party Analysis

Tech Stocks Sell Off, Nasdaq Tumbles 2.5%, Futures Lower


In Summary

  • Stocks slide with the technology sector dragging down the market
  • Futures remain under pressure, Nasdaq declines around 0.80% before the opening on Tuesday

Tech Stocks Sell Off, Nasdaq Tumbles 2.5%, Futures Lower

Stocks fell on Monday with the tech sector leading the market lower as investors fled from heavyweight tech names. The Dow Jones Industrial Average and the S&P500 pulled back from their record highs while the Nasdaq tumbled more than 2.5%.

The S&P500 slid 44.17 points, or 1.04%, to end the session at 4,188.43. The Dow Jones Industrial Average declined moderately by 34.94 points, or 0.10%, to 34,741.82. The blue-chip index was trading in the green for most of the day, at one point advancing more than 300 points and briefly climbing above the 35,000 milestones for the first time in history. The Nasdaq Composite fell the most, losing 350.38 points, or 2.55%, to close the day at 13,401.86.

On Monday, the biggest losers were companies from the semiconductor industry, including Align Technology, down 7.33%, Qualcomm, down 6.46%, and Lam Research, down 6.99%. Big tech names were also among the decliners with Tesla losing 6.4% and Facebook erasing 4.1%. Amazon gave away 3%, while Google and Microsoft fell around 2% apiece.

Market participants are once again concerned that the high valuations of tech stocks could be hurt by higher inflation. Increasing inflation pressures in the US economy are on the rise, which led to a climb in longer-dated yields. The 10-year Treasury yield jumped to 1.6%, increasing by 0.03% on the day.

Fed Continues It’s Bond-Buying Mission

Investors are bracing for Wednesday’s price increase data which is expected to reach as high as 3.6% in April from the same time last year. According to the five-year break-even inflation rate, inflation expectations reached over 2.7%, the highest in about 15 years.

The Federal Reserve has been downplaying inflation pressures for over a year now. More recently, in his last appearances, Federal Reserve Chairman Jerome Powell has signaled the central bank does not see inflation rising more than 2.4% this year. As the Fed remains relaxed about inflation that could exceed the 2% target, the bank has vowed to continue its bond-buying program of $120bn a month while keeping interest rates low to allow the economy to heal from the pandemic.

Moreover, given the weaker-than-expected jobs report for April, the Fed does not intend to reduce its bond purchases. In April, the US labor market added 266,000 new jobs, far lower than the 1 million expected. On that note, the Fed remains far from its goal of maximum employment as the jobs market is still around 8 million jobs less compared with pre-pandemic levels.

The uncertainty that is causing market jitters now is whether higher prices will lead to a bear market with tech stocks taking the biggest hit. While technology companies were among the strongest winners during the pandemic-stricken 2020, higher inflation may erode the value of future earnings and thus drive investors away from highflying tech stocks.

On Tuesday, equity futures remain under pressure. Dow Jones futures are lower by around 0.20%, while S&P futures declined by about 0.40%. Nasdaq futures at one point slid more than 1%, but later recovered some ground and are now hovering lower by roughly 0.70% in pre-market trading.

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