The market rout intensified on Tuesday as selling in higher-priced technology shares spilled over to everything from bank stocks to energy and industrials.
The Dow Jones Industrial Average slid 470 points, led by declines in Home Depot and Boeing. The tech-heavy Nasdaq Composite lost 0.5% after shedding 2.2% at its session low. The S&P 500 traded 1% lower as all 11 sectors fell into negative territory.
“What started in technology earlier this month has finally moved over to the broader markets,” said Ryan Detrick, chief market strategist at LPL Financial. “Although we are coming off a record earnings season, continued supply chain and labor shortages are adding to potential inflationary pressures.”
The CBOE Volatility Index, a measure of fear in the markets derived by option prices on the S&P 500, jumped as high as 23.73, levels not seen in two months. The so-called VIX remained stubbornly above 20 for most of last year before dropping to a low below 16 last month. A rising VIX is often accompanied by falling markets.
Top investor Stanley Druckenmiller shared concerns on CNBC’s “Squawk Box” Tuesday morning that also unnerved investors.
While Druckenmiller said he was still long stocks somewhat, the hedge fund manager said assets were in a “raging mania” and that the Fed and U.S. government risked endangering the U.S. dollar’s reserve status by injecting too much costly stimulus into an already hot economy.
“I can’t find any period in history where monetary and fiscal policy were this out of step with the economic circumstances, not one,” Druckenmiller said. “If they want to do all this and risk our reserve currency status, risk an asset bubble blowing up, so be it. But I think we ought to at least have a conversation about it.”
Big Tech stocks led the market decline in morning trading but the group traded well off the lows by midday. Apple is down more than 1%, while Amazon and Netflix erased losses and turned green.
Tesla shares, the poster boy for growth stocks with lofty valuations and expectations, fell more than 4%. A Reuters report that the electric carmaker halted plans to expand its Shanghai plant into an export hub, also aided the decline.
Tech shares, which were the biggest pandemic winners, fell out of favor earlier this year as fears of inflation and higher interest rates crept up. Growth-oriented companies tend to get hit hard by rising rates as they erode the value of their future earnings.
The latest headlines, including a labor shortage as well as a jump in Consumer Price Index in March, helped fuel inflation worries.
Job openings soared to a record high in March as employers struggled to find workers to fill those positions, the Labor Department reported Tuesday.
Even as help wanted jumped from February by 597,000, or 8%, to 8.12 million, hires rose just 215,000, or 3.7%, to just over 6 million.
“When valuations remain high, even factoring in yesterday’s and today’s selling, the promise of rock bottom interest rates fades as the market questions the strong job openings report against the availability of labor and the need to boost wages to fill the positions, not to mention concerns that fiscal largesse is keeping workers from moving back into the labor force,” said Quincy Krosby, chief market strategist for Prudential Financial.
Big Tech got clobbered on Monday as investors exited stocks like Apple and Microsoft, dragging the Dow Jones Industrial Average and the S&P 500 off their record highs in the process. Both of those stocks lost at least 2% to start the week. The Nasdaq suffered the worse of the selling and fell 2.5%, finishing the day at its session low on Monday.
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