Wall Street falls in another volatile session

US stocks swung wildly Friday and ended the session modestly lower, capping a turbulent two-day stretch of trading.

The Dow Jones Industrial Average swung more than 850 points from its high to its low. Picture: AFP

US stocks swung wildly Friday and ended the session modestly lower, capping a turbulent two-day stretch of trading that snapped five-week winning streaks for the S&P 500 and Nasdaq Composite.

The indexes were battered by another round of selling in the morning, with tech stocks taking the brunt of the pain for a second consecutive day. Investors then pounced on the dip, helping to recoup most of the losses and slow the previous day’s sell-off, which was the steepest since June.

Apple, the biggest company in the US by market value, was among the stocks investors favoured, helping to yank major benchmarks up from their lows. The tech giant notched a small gain after falling as much as 8.3 per cent earlier in the session.

The S&P 500 finished the day down 28.10 points, or 0.8 per cent, to 3426.96, while the Nasdaq Composite declined 144.97 points, or 1.3 per cent, to 11313.13.

The Dow Jones Industrial Average opened higher, then swung 875 points from its high to its low and rebounded to end the day down 159.42 points, 0.6 per cent, at 28133.31.

The action underscored investors’ ongoing bet that tech stocks remain a clear winner of the coronavirus pandemic. Although the virus has upended most other businesses, big technology companies have weathered the crisis as people relied on apps and software to work, stream movies and communicate with friends and family.

The benchmarks finished the week in the red, halting a multiweek advance for the S&P 500 and the Nasdaq. The broad index fell 2.3 per cent over the past five trading days, its biggest weekly decline since June. The Nasdaq fell 3.3 per cent for the week, its worst performance since March.

The Dow, meanwhile, dropped 1.8 per cent for the week.

“The areas that have been punished the most in this sell-off are the ones that benefited the most,” said Justin Waring, an investment strategist in UBS Group’s global wealth-management arm, of tech’s retreat. “The market is still settling into what’s a fair valuation of these companies.” Despite the recent declines, all three indexes all remain up more than 50 per cent from the lows of March, with the S&P 500 trading at the same level it was at just two weeks ago.

Some traders said dynamics in the options market may be partly to blame for the volatility, pointing to a recent jump in trading volumes of options linked to the shares of the top tech stocks.

Japan’s SoftBank Group bought options tied to billions of dollars worth of individual tech stocks, The Wall Street Journal reported Friday. Analysts say that move has turbocharged the tech sector, whose sheer size drives broader market swings. Their dramatic rally in recent weeks has pushed the stock market to new highs, but raised concerns of a dangerous unwind that could drag the market down with them.

For some on Wall Street, the tech sell-off appeared to come out of nowhere. “The drivers are a little bit unclear,” added Mr Waring.

The latest monthly jobs report seemed to factor little into Friday’s trading session. The report, which showed US employers added 1.4 million jobs in August, wasn’t far off from economists’ expectations and did little to change the narrative around a drawn-out economic recovery.

“We are still moving in the right direction and the pace of the jobs recovery seems to have picked up, but it still looks like it will take a while,” said Tony Bedikian, head of global markets at Citizens Bank. “We continue to be optimistic that the economy has turned a corner and that we’ll continue to see steady progress.” Nine of the 11 sectors of the S&P 500 traded lower Friday, with industrial and financial stocks notching gains.

The CBOE Volatility Index, a gauge of expected turbulence in the S&P 500, declined 10 per cent after Thursday’s spike but remained near its highest level since July.

Among individual stocks, shares of Apple rose 8 cents, or less than 0.1 per cent, to $US120.96, recouping an earlier loss. Tech stocks that pared losses included Microsoft, which closed down $US3.05, or 1.4 per cent, to $US214.25; Amazon.com, which slid $US73.38, or 2.2 per cent, to $US3294.62; and Facebook, which fell $US8.39, or 2.9 per cent, to $US282.73. All four stocks remain up sharply for the year, holding on to gains north of 35 per cent since December.

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. “For now I think the sell-off could be fairly limited,” she said.

Stocks also fell overseas. The Stoxx Europe 600 slid 1.1 per cent. In Asia, Japan’s Nikkei 225 closed down 1.1 per cent, and China’s Shanghai Composite fell 0.9 per cent. Australia’s S&P/ASX 200 fell 3.1 per cent, in its worst session since the start of May.

The pullback in stocks bears similarities to an earlier retrenchment in June, said Eli Lee, head of investment strategy at Bank of Singapore. He said he doesn’t see scope for a deep correction.

“In the longer term, low interest rates and the gradual recovery in the global economy will be supportive” for stocks, Mr Lee said.

-Wall Street Journal