Plunge in US tech continues, as NASDAQ enters technical correction

The mini tech-wreck on Wall Street continued overnight. Heading into last night’s trade, the question on everyone’s lips was whether last week’s pullback in US tech-stocks would extend into the new week. After the US labour-day long weekend, the answer was an emphatic: yes.

The NASDAQ plunged 4.1%, with the benchmark S&P 500 falling by 2.8%. Of course, the big laggards were those stocks that had launched the US stock market into record territory to begin with: Apple shed another 6.7%, while Tesla shares flopped a remarkable 21%.

Although the correction in US-tech is the catalyst and primary drag on global stocks right now, one is struck by the very clear risk aversion extending throughout financial markets. Volumes were high and the losses were broad-based in equity markets, while the US VIX edged back to the 31-mark.

Despite the bearish price signals being sent by the market overnight, the general tone to market commentary has remained relatively neutral. Panic can’t be read anywhere in the financial press. This move, as the consensus seems to be in the market, remains a necessary function of an until-now frothy market.

Given the market’s buy-the-sip conditioning, engineered by a paternalistic US Fed, the view is probably reasonable. However, given how distorted markets had ostensibly become, there’s room for a long-way down for US stocks.

For arguments sake: the forward P/E for the S&P500 remains at a 35% premium to its 5-year average, while its ever reliable 200-day EMA sits another 6% below the index’s current price.

Of course, the yield advantage still sides with stocks, and once momentum neutralizes, the path of least resistance for equities probably remains to the upside.

Nevertheless, this spurt in volatility ought to shake-down the market, and probably sow some nervousness into it, especially as markets look towards a risk-laden couple of months.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get commission from just 0.08% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. All share prices are delayed by at least 20 minutes. Prices are indicative only.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.