The stock market ended a second straight day of turbulent trading with more losses Friday, but managed to recoup some lost ground by the end of the day. Technology stocks were again the focus of the selling, and big names like Facebook, Amazon and Google’s parent company ended lower. There wasn’t a particular catalyst for continued selling in the high-flying tech sector, but analysts noted that those stocks had posted gigantic gains so far this year that many thought were overdone. The S&P 500 lost 0.8%, while the tech-heavy Nasdaq lost 1.3%. U.S. markets will be closed Monday for Labor Day.
“We had a fast and furious rally at the end of August and we’ve given it back,” said Barry Bannister, head of institutional equity strategy at Stifel. “Investors are like a herd of gazelle on the Serengeti; it doesn’t take much to spook them. They’re alarmed and on the move.”
The VIX, a gauge of how much volatility investors expect in the market, has been rising. Even so, traders were not shifting funds into traditional safe-haven assets like U.S. government bonds and precious metals, a sign that the sell-off was not necessarily a reaction to jitters about the economy.
“A lot of people were piling into the (tech) trade and there are a lot of gains to be made,” said Stephanie Roth, portfolio macro analyst at J.P. Morgan Private Bank. “This is more an instance of profit-taking, rather than true panic.”
She noted it’s not unusual for traders to pocket recent gains ahead of a holiday weekend. U.S. markets will be closed Monday for Labor Day.
The 10-year Treasury yield rose to 0.71%, up from 0.62% late Thursday. The higher yields helped send financial stocks higher, since banks can lend money at higher rates once yields rise in the bond market. Capital One Financial rose 4.7%
Investors have been betting technology companies will keep making huge profits as people spend even more time online with their devices during the pandemic, making new market darlings of companies like Zoom Video Communications as many Americans work remotely and students do online learning.
Some of the tech high flyers racked up more losses Friday. Nvidia was one of the biggest decliners in the S&P 500, down 5.6%. The chipmaker is still up more than twofold this year.
Apple slid 1.8%, Amazon dropped 3.6% and Zoom fell 5.9%. Even so, Apple is still up 62% this year, while Amazon is up more than 75%. And Zoom is up more than 428% for the year. Even with this week’s pullback, technology is up 27% this year, well ahead of the S&P 500’s 10 other sectors.
“The tech gains were so far, so quick that it was almost concerning, so the reversal of that is natural volatility,” Roth said. She noted that the higher-trending VIX signals more volatile trading ahead.
“We should expect to see some larger corrections,” Roth said.