U.S. stocks fell sharply Thursday, driven by a broad decline
in many of the technology firms that have led the market higher in recent
months.
The Dow Jones Industrial Average fell 811 points, or 2.8%,
to 28290 as of the 4 p.m close of trading in New York, suggesting that
investors may be taking a breather following a rally that sent the Dow
industrials above 29000 for the first time since February a day earlier.
The S&P 500 lost 3.5% to 3455, while the tech-heavy
Nasdaq Composite slid 5% to 11458.
Big technology companies, including Facebook and Apple Inc.,
were leading the declines Thursday, contributing to the pressure on Nasdaq.
Facebook fell more than 4% and Apple lost nearly 7%, a drop mitigated by its
stock split in August. Amazon.com Inc., meanwhile, lost 5.4%.
Big technology firms have been among the leaders in the
broad market rebound. Overall, stocks have soared since March despite the worst
economic slump in decades and the novel coronavirus’s continued hold even in
some countries that had previously showed success in quashing it, confounding
investors.
The decline on Thursday indicates the rally may not continue
unabated, investors said.
Holly MacDonald, investment chief of New York-headquartered
multi-family office Bessemer Trust, said the sell-off represented something of
a return to more normal conditions and wasn’t entirely unexpected given the
August gains. She also said she expected a pickup in volatility going into the
fall.
“As the market continues to digest the news related to
Covid, the vaccine, the election, there are going to be sessions where you
don’t see that degree of strength,” Ms. MacDonald said.
On the economic front, fresh data showed that, seasonally
adjusted, 881,000 Americans applied for unemployment benefits for the first
time through the week ended Aug. 29. Unemployment claims have continued to edge
lower but remain near historic highs, signaling layoffs continue as the
coronavirus hampers the economic recovery.
The uptick in market volatility could be due to a large
number of call options, which confers the right to buy shares, on technology
stocks such as Apple and Tesla, according to Saxo Bank. Market makers have been
forced to take the other side of such trades, buying the underlying stocks to
hedge their positions.
U.S. stock options trading has been driven by Robinhood
traders, said Peter Garnry, head of equity strategy at Saxo Bank. If shares in
a stock fall enough, market makers will unwind their shares, causing a sharp
selloff.
“Over the past few months we’ve had really quite a strong
recovery, and that has started to stall,” said Andrew Hunter, senior U.S.
economist at Capital Economics.
Federal Reserve official Mary Daly became the latest policy
maker to call for renewed fiscal stimulus Wednesday, saying that reduced
government spending measures could slow the economic recovery. Economists have
worried that the expiration of extra unemployment benefits that kept households
afloat could trigger a drop in consumer spending.
Senate Majority Leader Mitch McConnell raised a question
Wednesday as to whether lawmakers could reach an agreement on a new spending
package in the next few weeks. Investors have been betting on Republicans and
Democrats striking a deal later this month to offer additional relief to U.S.
consumers and businesses, after talks stalled in August.
Renewed tensions between Beijing and Washington also remain
a risk for markets. The Trump administration signaled plans to impose new
restrictions on Chinese diplomats in the U.S., citing Beijing’s use of similar
measures on American envoys. The Chinese embassy in Washington responded by
accusing the U.S. of violating international conventions, characterizing the
fresh restrictions as unjustified and urging the country to reconsider.
“The U.S. election is clearly drawing closer, the U.S.-China
trade war is not put to bed, so there are huge uncertainties for the market,”
said Altaf Kassam, head of investment strategy for State Street Global Advisors
in Europe. “Frankly, we’ve just had an amazing run up and the market does need
to pause for breath.”
The government’s efforts regarding a coronavirus vaccine
have left some investors concerned that the issue is becoming a campaign
weapon, which may discourage people from having the shot when it is ready
because of safety concerns or political views. The Centers for Disease Control
and Prevention urged states to speed up approval for vaccine distribution sites
by Nov. 1, which is just days before the presidential election.
In bond markets, the yield on the 10-year Treasury ticked
down to 0.649%, from 0.650% Wednesday. Yields fall when prices rise.
“Central banks have had a massive impact on the financial
markets,” Mr. Zahn said. “We had that big selloff in March and we’ve seen quite
a big rebound.”
Overseas, the pan-continental Stoxx Europe 600 climbed 0.7%.
Markets in Asia ended the day on a mixed note, with the Shanghai Composite
closing down 0.6% while South Korea’s Kospi added 1.3%.
The Turkish lira hit a record low Thursday, with $1 buying
7.4535 lira, after the main inflation gauge remained unchanged between July and
August, but the cost of food and transportation rose. The central bank has
spent billions of dollars stemming the fall of the lira this year, worried that
a weaker currency would boost inflation.
In commodities, Brent crude oil fell 1.9% to $43.56 a barrel
and U.S. crude futures declined 2% to $40.66 a barrel. The move follows five
straight weeks of gains for crude, likely prompting some profit-taking,
according to Commerzbank.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com, and Juliet
Chung at juliet.chung@wsj.com.
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