Selling big tech and other high-growth stocks kept major market indices under pressure on Tuesday, more than canceling out the S&P 500’s strong start to the month on Monday.
The broad market index fell 1.2% while pressure on some of the world’s largest tech companies dragged the Nasdaq Composite down 2.6%.
Apple, the largest publicly traded company in the US, fell more than 4%. The Google parent alphabet lost more than 3%, Facebook lost 2.8%, and the electric car maker Tesla fell 3%. Investors didn’t spare the market’s chipmakers as Nvidia, Intel and Advanced Micro Devices lost 4.5%, 1.4% and 1.5%, respectively.
The Dow Jones Industrial Average fell 140 points, or about 0.4%, as Salesforce and Boeing hit the blue chips.
The reasons for the downside pressure varied, but strategists cited a mix of concerns about rising inflation, fears that the Federal Reserve might ease monetary stimulus sooner than telegraphed, and the potential for tax hikes in the months ahead.
US stocks hit their lows after Treasury Secretary Yellen commented that interest rates may need to rise slightly to prevent the economy from overheating.
Dennis DeBusschere, ISI strategist at Evercore, wrote that while Tuesday’s modest rate hike isn’t a loud siren to worry investors about the Fed, he believes taper fears may play a role.
“The best we can say is that supply concerns are a huge concern for investors and inflation / inflation expectations are becoming a headwind,” he wrote in an email. “Although Fed futures are pricing in a much faster rate of rate hikes than the Fed would like … they are not today. The story is about inflation and stronger growth numbers that make inflation even higher, and what, in the face of supply constraints this means stocks. “
DeBusschere’s supply-side concerns echo those of a growing number of executives and investors who say rising input prices are starting to detract from profit margins.
Warren Buffett, the CEO of Berkshire Hathaway, said during his company’s annual meeting over the weekend that he is seeing “very significant inflation” and that his companies are raising prices.
Other companies like Clorox have indicated in recent earnings reports that the prices they pay for the materials used to make their products are increasing and could ultimately be passed on to customers. The prices of raw materials, from sawn timber to corn to palladium, have risen in recent months.
Others have said that even the results of the blowout gains failed to suppress market tremors. Even after factoring in Tuesday’s losses, the S&P 500 is up more than 10% this year.
“We went through a period of two to three weeks in which really good news in the markets had little or no reaction,” wrote Art Hogan, chief market strategist at National Securities. “Investors are uncomfortable with new highs and there have been 25 new highs for the S&P 500 so far this year.”
“There are concerns that the economic explosion of the 1920s will last longer than just this summer as people are starting to feel good when they are on the move,” he added. “Stocks look expensive in retrospect, but not from a forward-looking perspective.”
With the market at an all-time high, investors have been torn between reopening with stocks like retailers or continuing to bet on Big Tech, which has just posted blockbuster gains.
The move in stocks followed solid gains for the Dow on Monday as investors piled into stocks that would benefit most from an economic reopening. The 30-share benchmark gained more than 200 points, while the S&P 500 gained 0.3%. Retail stocks led the market on Monday, with Gap and Macy’s gaining more than 7%.
Pfizer stock remained unchanged despite the release of quarterly results that exceeded expectations and the guidance for 2021 was raised. CVS Health stocks rose 2.5% after the pharmacy chain and insurance company also raised their forecasts.
United States Steel was up 4% after Credit Suisse upgraded its stock from underperformance to outperformance. The rise in steel prices made it clear that the industry was in a “super cycle”.
“Investors may be increasingly disappointed that given the fantastic earnings news, stocks are not doing well,” Jim Paulsen, chief investment strategist at Leuthold Group, told CNBC.
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– with reports from Jesse Pound of CNBC.
