A slump in technology and internet stocks accelerated Friday, putting the S&P 500 in danger of joining the Nasdaq Composite in correction territory, as investors continued an October retreat from risky assets.
The Nasdaq Composite fell 1.8%, paring much of Thursday’s rebound and putting it down about 10% for the month, while the Dow Jones Industrial Average declined 1% to 24742. A close below 24145.55 would put the blue-chip index in correction territory.
Markets around the world have been caught up in a whirlwind week marked by intraday drops and sharp rebounds. Worries about corporate revenue slowing and whether a slowdown in China and Europe growth could spill over into the U.S. economy have sent U.S. stocks into a tailspin, putting major indexes on course for their worst month in several years.
Fast-growing internet and tech firms have been some of the hardest hit during the turmoil of the past few weeks, leading some analysts to wonder whether companies that had previously seemed immune to global growth fears rocking other markets can continue surging ahead.
Quarterly sales from Amazon.com and Google parent Alphabet disappointed investors, sending the two tech behemoths’ stocks sharply lower Friday and pushing prices of everything from retail stocks to copper prices lower.
This week’s selloff has been characterized by widespread buying and selling, leading to whipsaw trading that has jolted many investors.
“Once you start seeing a slowdown in revenue, it makes sense that those stocks could fall, but what’s been upsetting is you see everything coming down,” said Craig Hodges, portfolio manager for Hodges Funds. “I’m really amazed at some of the prices I see.”
Mr. Hodges said he has been buying shares of materials and home builders that have also been engulfed by this week’s selling and among the market’s worst performers this year.
Shares of Amazon slumped 7.7% to near a bear market—characterized by a decline of at least 20% from a recent high—while Alphabet fell 2.2%, recovering some of its earlier losses. Facebook, Netflix and Apple, which reports earnings next week, also fell.
With Amazon’s drop, the e-commerce company’s market value fell to roughly $800 billion, putting it behind Microsoft as the second-largest U.S. company behind Apple.
After Amazon hit a $1 trillion market cap early last month, some analysts had anticipated it would soon overtake Apple as the world’s largest publicly traded company. But investors have said weaker-than-expected revenue has stoked fears about softening global demand.
This month’s selloff in the so-called FANG stocks—Facebook, Amazon, Netflix and Google parent Alphabet—has taken more than $300 billion off the group’s market value, according to Dow Jones Market Data. The Nasdaq Composite had lost more than $1 trillion this month through Thursday.
In addition to Amazon and Alphabet, lackluster sales and forecasts from executives at a wide swath of companies earlier this week swung stocks. Weak reports from Caterpillar and 3M battered major indexes Tuesday, while poor sales targets from chip maker Texas Instruments hurt not only that company but the semiconductor group.
The trend of pockets of weakness widening to engulf entire sectors and the wider market has some analysts predicting more turbulence ahead as reports of weaker-than-expected consumption and higher input costs have surprised some investors.
“It has brought people to wonder, ‘Are these fantastic fundamentals fading?’” Jim Paulsen, chief investment strategist at Leuthold Group, who has recommended this year reducing stock positions and buying beaten-down commodities and emerging- market assets. Mr. Paulsen predicts U.S. stocks will fall further in the coming weeks.
Data Friday showed strong consumer and government spending powered a 3.5% increase in U.S. gross domestic product in the third quarter, although a warning sign about the outlook emerged in the form of weak business investment. Tepid housing and auto sales also continue to hang over corners of the market ahead of next week’s jobs report.
Just 28% of individuals think stocks will be higher six months from now, down 6 percentage points from last week and the lowest level since the start of July, according to the American Association of Individual Investors.
Weakness in the U.S. has continued to spill over to markets around the globe, many of which had already been pummeled by economic fears earlier in the year.
The Stoxx Europe 600 fell 0.8% Friday and is down 8% for the month, while commodities such as copper used widely in manufacturing and construction also continued to drop.
Investors continued to scoop up safer assets, pushing gold prices up for the fourth consecutive week. The yield on the benchmark 10-year U.S. Treasury note edged down to 3.087%, according to Tradeweb, from 3.119%. Yields fall as bond prices rise.
Some investors’ anxieties have reached a fevered pitch, as the swiftness of this week’s pullback, along with the breadth of the tech and growth companies caught up in it, has rekindled fears of the 2008 financial crisis and the dot-com bubble in 2000.
“There are the less rational, significantly more emotional” investors, said Hugh Johnson, chairman of Hugh Johnson Advisors LLC, a wealth-management firm in Albany, N.Y., who added that more of his clients have been pushing to sell stocks than buy. “They simply want to reduce equities period. They worry about a repeat.”
By Amrith Ramkumar - Wall Street Journal
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