Holiday blues as US tech sell-off continues

All eyes were on US markets as they returned after the Labour Day holiday, having gone into the long weekend on the back of two days of significant losses for US technology stocks; far from refreshed, the sell-off continued for a third day, dragging down all three major American stock indexes more than 2% – writes Hannah Barnaby.

There was further selling pressure on Nasdaq stocks following what had been an outstanding performance during the pandemic; Apple shares lost 7% and Tesla a whopping 21% having failed in its bid to become a member of the S&P 500.

The Dow Jones Industrial Average closed 2.25% lower, the S&P 500 fell 2.78% and the tech-heavy Nasdaq dropped 2.95%.

Concerns on faltering oil demand have been to the fore with its price falling 41% in the year to date; the market had stabilized following increased imports into China, but demand has since stalled, and there are concerns over excess supply.

Demand for gasoline in the States is down around 10% and economists will be watching developments closely as a possible harbinger of declining global economic health.

The global economy is expected to shrink by roughly 5% this year as concerns about coronavirus continue to weigh on business activity and add to trade tensions.

Asia followed Wall Street down on Wednesday with its main indexes in the red; biggest faller in the region was Australia’s ASX 200 index which fell 2.6% while China’s Shanghai Composite dropped 2%.

Despite a general feeling that US tech stocks were trading at unsustainably high multiples, there has yet to be a definitive sign that the index has past a tipping point, although the possibility remains that the pandemic-fuelled rise of the last few months may be easing as the world returns to some sort of normality.

Elsewhere, the US Presidential elections in November brings its own economic uncertainty, including the ongoing spat between the US and China which threatens to undermine investor sentiment.

More volatility is likely as the virus ebbs and flows and the quest to deliver a vaccine continues; the bankers have significant meetings planned as the Fed, the European Central Bank and the Bank of England all convene in the next few days.

The recent sell off should be viewed in the context of generally strong US markets;  year-to-date the Dow Jones is down by just 3.6%, while the S&P 500 has added 3.1%. Despite its recent falls, the Nasdaq is ahead by 21% in 2020; Apple has added 55% and Tesla 290% in the year to date.

The pound fell against major currencies after the government renewed the prospect of a no-deal Brexit, saying the UK would ‘prosper mightily’ with or without a deal; the pound dropped 1.6% to just over $1.30 and a similar amount against the euro, to €1.10.

The FTSE 100 also turned negative, but climbed back from its steepest losses to end the day down 0.12%; however, the UK’s main index is down 21% in the year to date, and it remains an unloved investment destination for international institutional investors able to find better value elsewhere.