Tech stocks suffered a broad sell-off yesterday as US markets returned to action following the holiday weekend. Tesla (NASDAQ:TSLA) was hit the hardest, sinking 21.1% after the S&P 500 Index Committee declined to add the electric carmaker to the benchmark index.
The committee added online store Etsy (NASDAQ:ETSY), test equipment maker Teradyne (NASDAQ:TER) and pharmaceutical firm Catalent (NYSE:CTLT). Investors had been anticipating Tesla’s entrance into the index this quarter after it delivered a fourth consecutive quarter of profit, a requirement for inclusion. Being added to the index would mean a host of funds tracking the S&P would have to buy the stock, potentially giving the firm’s share price a boost.
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Tesla’s 20% plus loss was part of a broader sell-off among major tech names over the past week. Investments made by Japanese investment giant Softbank (TYO:9984) have raised questions about the fragility of tech stocks’ mega run over the past several weeks.
Per The New York Times, Softbank bought billions of dollars-worth of tech stocks, betting that prices would keep rising. As the stocks soared, the firms that sold Softbank the options became forced buyers in order to hedge their risk. More pain came after hours when Slack (NYSE:WORK), the communications app, tanked 18% after posting its results. Despite beating revenue growth forecasts, it failed to see the kind of surge that Zoom (NASDAQ:ZM) has seen since the coronavirus emerged.
“Whilst this began as more of a technical correction within tech following the astonishing ramp in August than a broad risk-off move, it is nonetheless bleeding into the broader market and dragged down the majority of stocks,” said Adam Vettese, Market Analyst with eToro. “US benchmark yields have retreated and oil prices have rolled over.”
There was some rotation going on – Disney (NYSE:DIS), Nike (NYSE:NKE), McDonald’s (NYSE:MCD), Ford (NYSE:F) and GM (NYSE:GM) rose – but the S&P 500 still declined almost 3% and is not so far off correction territory itself.
“On the whole there is a sense that this selloff represents that sentiment has become too exuberant and needed to correct,” observed Neil Wilson, Chief Markets Analyst at Markets.com. “We may expect the US market now to chop in W-pattern over the coming months and follow the path taken by European equities since June with the loss of momentum in the economic recovery and US election risks likely to become more visible in equity markets.”
General Motors stock up on Nikola Corp move
There was a host of news yesterday extending beyond the tech sell-off. General Motors bought an 11% stake in electric vehicle maker Nikola Corp (NASDAQ:NKLA), as part of a deal to help the firm to develop and manufacture new models. The announcement sent GM stock 7.9% higher.
At an index level, three major US stock indices were deep in the red on Tuesday, with the Nasdaq Composite falling hardest at -4.1%. In the S&P 500, technology stocks fell 4.6% on average, with utilities the only sector that did not fall by more than 1%. Oil names suffered a painful day, with the 10 biggest losers in the S&P mainly hydrocarbon exploration firms. Tumbling oil prices triggered the selling, after Saudi Arabia cut its official selling price to the US and Asia.