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Sudden volatility in tech stocks unnerves investors
Tesla stock up after dropping over 20 percent from record close
FOX Business’ Charlie Gasparino weighs in on how Tesla and other big tech stocks will look when markets reopen next week.
The market roller-coaster ride into the Labor Day weekend is confronting investors with fresh questions about the soundness of the technology-led advance in major stock indexes.
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The Nasdaq Composite slid more than 6% over two days last week after hitting a fresh high, led by Thursday's record one-day decline in market value at Apple Inc., the most-valuable U.S. listed company. Selling intensified Friday, at one point pushing the index down almost 10% from its record and spreading to markets including crude oil and gold, before a broad reversal narrowed losses in some stocks and sent others back into more familiar, green territory.
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Few investors believe the late-week rout signals the end of a rally that has taken the Nasdaq to 43 record closes and pushed the S&P 500 up more than 6% for the year. The economy continues to show signs of improvement and with interest rates near record lows, the investor mantra that "there is no alternative" to purchasing the shares of major U.S. corporations remains very much intact. The main driver of the tech boom — strong growth that has been boosted during the pandemic as more consumers work and learn remotely — also still holds, investors say.
Even so, the scale of the gains among major technology shares this year, the resulting rich valuations and the gobsmacking market capitalizations of many of these firms, raise the possibility of large share-price drawdowns this fall. The Nasdaq Composite is up 26% for the year. Swings in the shares of Alphabet Inc., Amazon.com Inc., Facebook Inc., Microsoft Corp. and others stand to accentuate expected volatility around the U.S. presidential election in the fall and attempts to control the coronavirus outbreaks that have hobbled the global economy.
"They've run up so much and they're overextended," said Leslie Thompson, managing principal at Spectrum Management Group in Indianapolis, which manages about $700 million. She has been cutting her investments in tech stocks such as Apple and chip maker Nvidia Corp. recently. The speed of the climb "was just really ridiculous," she said.
The ascent by these stocks buoyed markets in months of economic uncertainty: Apple, Facebook and Amazon each rose 85% or more from March 23, when markets bottomed following the Federal Reserve's announcement that it planned extensive support for the economy, to Sept. 2.
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Now, though Friday's selloff was much milder than Thursday's, some investors are keeping an eye out for signs that the tech trade is starting to unwind. It is a process that some fear could exert a heavy weight on markets given the firms' size and popularity with traders, and because many investors have struggled to rationalize the scale of the markets' gains at a time of economic dislocation and fractious politics.