US technology stocks suffered their worst daily performance since mid-March as investors dumped stakes in some of the best-performing stocks since the pandemic hit financial markets last year.
On Wall Street, the technology-focused Nasdaq Composite index dropped 1.9 per cent, its worst trading session since March 18. The broader-based S&P 500 fell 0.7 per cent, dragged down by technology and consumer discretionary shares.
Shares in Apple fell 3.5 per cent, on course for their largest drop since October last year. Facebook, Google’s parent Alphabet and the chipmaker Intel all declined.
Other parts of the $48tn US equity market that have rallied sharply this year were under pressure, with shares of companies that recently went public as well as stocks sensitive to swings in the price of bitcoin underperforming the broad market, according to Goldman Sachs.
Traders and investors said they were increasingly unnerved by indications that higher inflation was beginning to emerge, underscored by comments from US Treasury secretary Janet Yellen on Tuesday, who said interest rates might need to rise to keep the US economic expansion from bubbling over.
“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat,” she said at an event hosted by The Atlantic magazine.
The point was later echoed by White House press secretary Jen Psaki, who said the Biden administration took “inflationary risk incredibly seriously”.
“Even though rates are not going up [today], we are seeing more and more pockets of inflation bubbling up,” said Jim Tierney, chief investment officer of concentrated US growth at AllianceBernstein. He pointed to a further jump in commodity prices, as well as commentary from executives on earnings calls that indicted many companies were already intending or had planned to increase prices.
“The equity market might be saying, ‘Hey, we’re worried about inflation’,” Tierney added.
Europe’s Stoxx 600 index closed 1.5 per cent lower, with tech stocks also falling the most. Shares in the German software group SAP fell more than 3 per cent and the Dutch semiconductor equipment maker ASML lost almost 5 per cent of its stock market value.
The moves came after the large tech groups stunned Wall Street with surging first-quarter sales and profits that underscored how much they had benefited from consumers staying at home during lockdowns.
Investors were now “getting out of lockdown stocks in the short term”, said Didier Rabattu, head of equities at the private bank Lombard Odier, as they looked ahead to “strong economic growth and participated in reopening trades”.
Brian Bost, co-head of equity derivatives in the Americas at Barclays, added that the fact stocks had pulled back despite the strong results was a “‘tell’ on current market positioning”. “Moreover, whether you think inflation could be transitory or not, you at least have to consider higher risk premiums,” he said.
The US economy grew 6.4 per cent in the first quarter of this year, data released last week showed. On Friday, non-farm payrolls data are expected to show the US economy added close to 1m new jobs in April.
“We have lowered our exposure to the US market and particularly to tech, where companies’ results have been strong but valuations are probably now too high,” said Juliette Cohen, strategist at CPR Asset Management.
Commodity prices continued their ascent on Tuesday. The price of copper hit its highest level in a decade last week, while a commodity price index compiled by Bloomberg on Tuesday struck its highest point since 2011.
Oil continued its advance, with Brent crude futures settling 2 per cent higher at $68.88 a barrel.
The dollar, as measured against a basket of currencies, strengthened 0.4 per cent, while the yield on the 10-year US Treasury note fell 0.01 percentage points to 1.59 per cent.
Treasury yields have climbed from about 0.9 per cent at the start of the year, but moderated since March after the US central bank pledged that temporary bursts of inflation would not persuade it to tighten monetary policy.