US technology shares that powered stock markets to record highs this summer were set to fall for a third consecutive session, in what some investors are calling a “healthy” correction to valuations that had surged since the coronavirus sell-off in March.
Futures contracts linked to the tech-focused Nasdaq 100 index — which includes Apple, Microsoft and Google — indicated that the benchmark would open about 3.2 per cent lower on Tuesday, when trading gets going after the Labor Day holiday on Monday. The index fell about 3 per cent last week in its worst performance since March. The broader S&P 500 benchmark was poised to open 0.7 per cent lower.
Europe’s major index, the Stoxx Europe 600, was down 1.5 per cent by 1pm in London, led lower by the technology sector. Dutch chipmaker ASML was among the weakest performers in the region, down more than 3 per cent.
There was no “obvious external trigger” for the broad retreat from tech stocks, said Patrik Lang, head of equity and strategy research at Julius Baer. But he noted that such companies had been trading at high multiples of their earnings during the coronavirus economic shutdown, as consumers spend more time on screens and home-workers shift to using videoconferencing applications.
“In our view, this is a healthy correction, as the divergence between funky technology names and the rest of the market has recently reached extreme levels,” he said.
The Nasdaq 100 had risen by more than three-quarters between its March low and its peak last Wednesday. “Equities were priced to perfection,” said Alexis Gray, investment strategist at Vanguard, reflecting that valuations had been supported by enormous injections of liquidity into the financial system by central banks since March.
“That was always going to be difficult to sustain when you have a disconnect between how markets are performing and what global economies are doing.”
Shares in SoftBank fell as much a 4.4 per cent in morning trading in Tokyo, continuing a sell-off that followed revelations by the Financial Times that the group had made a multibillion-dollar bet on options tied to US tech stocks. Shares in the company recovered before the Tokyo market closed, to end the session 0.3 per cent lower.
Oil prices also tumbled as traders fretted over the implications of rising coronavirus cases across the world for fuel consumption, while investors retreated into the relative safety of US government bonds. Gold, however, was left out of the risk-off trades as prices of precious metals also declined.
West Texas Intermediate, the US oil benchmark, slid by almost 7 per cent to $37.68. That left it down by around 15 per cent since last week. Brent crude, the international benchmark, was on track to fall beneath $40 for the first time since June, down 4.3 per cent to $40.21.
Sterling fell more than 1 per cent against the dollar to $1.3050, having lost a similar amount on Monday, putting the UK currency on for its worst week since May.
The drops came after the FT reported that the UK government was planning legislation that would override parts of Britain’s agreement on withdrawal from the EU. On Monday, it emerged that the head of the UK government’s legal department quit over the decision to rewrite parts of the Brexit deal relating to Northern Ireland.
Spot gold prices lost 0.6 per cent to $1,923 a troy ounce. The yield on ten year US government bonds, which falls as demand for the debt rises, slipped by 0.04 percentage points to 0.687 per cent.
Additional reporting by Myles McCormick in London