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Tech sell-off leads market to session lows with the Dow sliding 550 points
PUBLISHED TUE, MAY 18 20216:03 PM EDTUPDATED 20 MIN AGO
Yun Li
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Maggie Fitzgerald
@MKMFITZGERALD
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Stocks fall sharply as tech and energy sectors sell off
U.S. stocks fell sharply on Wednesday as massive selling returned to the tech sector amid a plunge in cryptocurrencies.
The Dow Jones Industrial Average fell 550 points, while the S&P 500 dropped 1.5% as all 11 sectors traded in the red. The tech-heavy Nasdaq Composite slid 1.5% as Microsoft, Facebook, Alphabet and Apple all dipped about 1%. The sell-off became broad-based as the weakness in tech spilled over into other sectors. The exception was a handful of retailers that reported solid earnings including Target and Walmart.
Sentiment in the tech sector was dented by a drop in cryptocurrencies including bitcoin. The world’s largest digital token plunged 30% at its low of the session to just above $30,000, according to Coin Metrics. Bitcoin has been cut in half since hitting an all-time high above $64,000 in mid-April. On Tuesday, China warned financial institutions not to conduct crypto-related business, possibly sparking the sell-off.
Tesla, a big holder of bitcoin, declined 4%. Microstrategy, another company which bought a large amount of bitcoin for its corporate treasury, tanked by 10%. Coinbase, the newly public crypto exchange, tumbled nearly 10%.
“There is no question that bitcoin has been the poster child for rampant market speculation and risk appetite,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “Thus, it should be absolutely monitored in gauging the pulse of risk taking, and now risk aversion.”
Growth stocks have come under pressure lately with the Nasdaq Composite falling nearly 5% in May as fears of inflation intensified. A sustained pickup in price pressures could unravel the Federal Reserve’s accommodative policies, which could hurt technology companies that have relied for years on easy borrowing costs for superior growth.
Cathie Wood’s flagship fund Ark Innovation ETF (ARKK) dropped more than 4%, bringing its 2021 losses to more than 18%.
“This was bound to happen at some point in ’21 and a somewhat of a reset in crypto-pricing is likely more healthy vs negative for the broader equity markets over time,” Jordan Klein, an analyst at Barclays, said in a note.
The Fed publishes the minutes from its April meeting later Wednesday afternoon, which could add to angst about inflation. The Fed kept its easy policies that meeting, but acknowledged that inflation could rise in coming months. The central bank maintains that these price pressures will be transitory.
“The major question for markets right now is whether the Fed is right and this increase in inflation is just temporary, because if inflation is not temporary, it could unleash a very painful period for virtually all investors,” Tom Essaye, founder of Sevens Report, said in a note.
Helping the sentiment a bit on Wednesday was better-than-expected results from Target. Shares of the major retailer popped by 3.8% after it said sales surged 23% last quarter.
Major stock indexes came off back-to-back losses weighed by weakness in the technology sector. Soft housing data on Tuesday partly triggered the broad selling in the previous session.
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