Wall Street's euphoria took a break Thursday, as steep losses in technology stocks dragged the rest of the market down with them.
Shares got little help from the key USA employment report which showed the jobless rate fell to 8.4 per cent, the first reading below 10 per cent since the coronavirus pandemic struck, but the economy added 1.4 million jobs last month indicating a continued but slowing recovery. Even so, Apple is still up 62% this year, while Amazon is up more than 75%. But the market felt due for a breather, analysts said. At its lowest point of the day the tech-heavy Nasdaq fell as much as 9.9% from its record high reached on Wednesday and the S&P 500 dipped briefly below its pre-crisis record, reached in February, although it too closed well off session lows.
If tomorrow's jobs numbers do not deliver, it's unlikely the stock market will rally much higher from here, analysts said. Economists surveyed by FactSet forecast that the USA economy created 1.4 million jobs in August, but that would be down from 1.74 million jobs in July.
The Nasdaq dropped 144.97 points, or 1.3%, to 11,313.13.
While data Thursday showed applications for jobless claims fell last week, US investors may need evidence of a fuller economic recovery after a 60% run-up in the S&P 500 since its March lows.
The Dow lost 520.56 points, or 1.8%. Prior to Thursday, the S&P 500 had risen nine out of the previous 10 days. Apple was down 8%, Amazon about 4.5% and Microsoft more than 6%. On Thursday, it fell 3.5%, while the Nasdaq 100 lost 5.2%.
The bout of volatility is unlikely to be the start of a downtrend, in part because institutional investors still have further room to boost their exposure to stocks, said Sophie Huynh, cross-asset strategist at Société Générale. "We should expect to see some larger corrections".
The Nasdaq is up 2,340.53 points, or 26.1%. The market's turnaround has been driven by low interest rates, massive amounts of spending on bond purchases by the Federal Reserve and other central banks, and encouraging economic trends as businesses have begun to reopen.
The data adds pressure on the White House and Congress to restart stalled negotiations over the next coronavirus relief package to lift the economy out of the worst recession since the Great Depression.
Many investors are also betting that a coronavirus vaccine will arrive later this year and clear the way for a recovery for the economy and corporate profits.
Semiconductor stocks also fell sharply.
"Unless Congress agrees to spend more money to stimulate the economy and close the output gap, it's very hard for us to grow", Bannister said.
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