Nasdaq sinks 4.4pc in Wall Street rout

Dow and S&P wiped out 2018’s gains in brutal trading overnight that saw the Nasdaq’s tech stocks punished.

The Nasdaq entered correction territory overnight. Pic: AP

The Nasdaq Composite plunged into correction territory after its worst day in more than seven years the latest sign of wavering investor confidence in the technology stocks that have powered the most recent leg of the bull market.

The weakness in the technology sector infiltrated other corners of the market, with the Dow Jones Industrial Average slumping 608 points. The blue-chip index and S&P 500 erased all of their 2018 gains.

With major indices sinking more than two per cent, the Dow and S&P 500 wiped out all the 2018 gains.

The Dow Jones Industrial Average lost 2.4 per cent to close at 24,583.42, a single day loss of more than 600 points.

The tech-rich Nasdaq Composite Index plummeted 4.4 per cent to finish at 7,108.40, posting its worst day since 2011, while the broadbased S&P 500 sank 3.1 per cent to 2,656.

Worries about global economic growth and corporate earnings have buffeted stocks around the world and commodities this month. High-flying internet and technology shares have been among the hardest hit.

Investors have flocked toward the technology sector for years because of its ability to consistently lift sales regardless of global economic growth, but recent trade tensions between the US and China and signs that earnings might be peaking have hurt the market’s leaders.

Sellers of computer chips that rely on trade flows between the world’s two largest economies have dragged the sector lower throughout the year and did again overnight following weaker-than-expected sales targets from Texas Instruments.

Analysts said the Nasdaq entering correction territory, defined as a drop of at least 10 per cent from its most recent peak, was another indication that investors fear a far-reaching slowdown in global economic growth.

The Nasdaq, whose 4.4 per cent decline was its worst one-day performance since August 2011, joined transportation, small-cap, bank and biotechnology stocks in correction territory, falling into that area for the first time since February 2016.

The big tech movers overnight

• Netflix fell 9.4 per cent to $US301.83
• Facebook fell 5.4 per cent to $US146.04
• Alphabet fell 4.8 per cent to $US1050.71
• Amazon fell 5.91 per cent to $US1662.20
• Alibaba fell 4.8 per cent to US$139.61
• Baidu fell 4.6 per cent to US$184.47
• Twitter fell 4.34 per cent to $US27.54
• Apple fell 3.43 per cent to $US215.09
• Tesla fell 1.92 per cent to $US288.50

Even when the Dow Jones Industrial Average and S&P 500 posted corrections earlier this year, the Nasdaq narrowly avoided a 10 per cent drop.

“We just have a bunch of different uncertainties, and that raises the fear factor all around,” said Jerry Braakman, chief investment officer of First American Trust. “This kind of environment really starts stressing people.”

Analysts have been weighing whether the recent sell-off heralds the end of a prolonged period of strength in the US or is simply a temporary adjustment.

While some investors expect another steady quarter of earnings growth to help the market stabilise, others are worried about pockets of weakness and that revenue gains might not continue.

Downbeat sales targets from Texas Instruments dragged down shares of companies that make computer chips, leading to declines across the broader technology sector. Texas Instruments, Nvidia and Advanced Micro Devices all fell at least 4.5 per cent, and the S&P 500 information technology group dropped 2.4 per cent.

Fast-growing internet and technology firms have been among the hardest hit by the recent bout of market turbulence, with some analysts wondering if their outsize sales increases can continue.

AT&T was also an S&P 500 laggard, dropping 6.7 per cent as the telecommunications company continued to suffer losses of traditional pay-TV customers. Shares of Netflix also tumbled, declining 7.2 per cent. The streaming company has erased the initial advance last week that followed its latest earnings report.

In other sectors, United Parcel Service shares fell 4.5 per cent following a quarterly sales miss from the package-delivery company.

Shares of aerospace giant Boeing rose 2.8 per cent, helping the Dow industrials after it said its business is booming, thanks to strong demand for commercial jets and new defence projects. Still, the S&P 500 industrials sector declined 2 per cent, after it was battered yesterday following weak earnings from Caterpillar and 3M.

Some executives have raised tighter financial conditions and higher input costs as challenges moving forward, with the Federal Reserve expected to continue to gradually boost interest rates.

The yield on the benchmark 10-year US Treasury yield fell to 3.122 per cent from 3.166 per cent. Bond yields fall as prices rise and have pulled back recently with some investors seeking safety in Treasurys. The WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, added 0.3 per cent.

President Trump blasted Fed Chairman Jerome Powell in an interview with The Wall Street Journal, saying the head of the central bank threatened growth and appeared to enjoy raising interest rates.

But tightening monetary policy alone doesn’t explain the recent market tremors, said Robin Creswell, managing principal at Payden & Rygel, who pointed to geopolitical tensions as another source of angst.

“What is complicating the picture is a range of extraneous factors,” Mr. Creswell said. “Those are much more difficult to price, so in the short term the market will react more to those short-term stimuli.”

Investors are waiting to see if the US and China can resolve their months long tariff fight ahead of planned meetings between leaders from the world’s two largest economies next month.

Even if the two sides compromise, some analysts see challenges to the global economy ahead.

Weakness in the housing and auto markets have unnerved investors bracing for a pullback in the US, where growth has surged this year. Sales of new homes in the US fell for the fourth month in a row in September, the Commerce Department said.

Preliminary eurozone purchasing managers index data on Wednesday suggested the regional economy grew at its slowest pace in over two years in October. The figure dropped to 52.7 from 54.1 last month. That is the lowest level since September 2016.

The Stoxx Europe 600 erased early gains, closing down 0.2 per cent in a sixth consecutive session of declines.

Dow Jones Newswires