US Stocks – Profit-Taking Continues as High-Flying Tech Shares Remain Under Pressure

The major U.S. stock indexes dropped for a third straight session on Tuesday as a sell-off in over-bought and over-valued technology companies continued from the prior week. Of all the high-flying issues, Tesla stood out as one of the weakest, posting its worst one day performance in nearly six months after the stock was passed over for inclusion in the S&P 500.

In the cash market on Tuesday, the benchmark S&P 500 Index settled at 3331.84, down 95.12 or -3.17%. The blue chip Dow Jones Industrial Average finished at 27500.89, down 632.42 or -2.52% and the technology-driven NASDAQ Composite closed at 10847.69, down 465.45 or -4.90%.

Sector Performance

Ten of the 11 major S&P sectors were lower, with only the defensive utilities group edging higher. News on Friday that SoftBank made significant option purchases during the run-up in U.S. stocks added to investor nervousness.

The technology sector once again was a major drag on the broader-based indexes with a decline of nearly 3%, the third straight decline and worst three-day performance for the sector since the coronavirus-led sell-off in mid-March. Even with the recent drop, which so-far is being attributed to profit-taking, the tech sector remains the best performer on the year, up about 25%.

Fears over potential U.S. sanctions against China’s biggest chipmaker, SMIC, hit domestic suppliers, with the PHLX semiconductor index down 3.43%.

The energy sector also slumped as the benchmark WTI and Brent crude oil prices fell below the crucial $40 a barrel level. The financial sector was also one of the biggest decliners. An index of major banks lost 3.0%.

Value-linked stocks fell 1.2%, but outperformed the broader market and a 2.4% decline in the growth-link index. Meanwhile, Wall Street’s fear gauge – the VIX – climbed for the third time in four sessions.

Individual Shares Take a Hit

At session lows on Tuesday, Facebook, Amazon.com, Apple, Tesla, Microsoft, Alphabet and Netflix – which are increasingly being referred to a “FAATMAN” – had collectively lost more than $1 trillion in market capitalization since September 2.

Tesla plunged 17.47%, its biggest daily percentage drop in almost six months, as the electric-car maker was excluded from a group of companies being added to the S&P 500. Investors had widely expected its inclusion after a blockbuster quarterly earnings report in July. Up to Friday’s close, the stock had surged about 400% this year.

JPMorgan Chase & Co fell 3.0% after a report it was probing employees who were allegedly involved in the misuse of funds intended for COVID-19 relief.

GM Bucks the Trend

General Motors Co jumped 9.1% after it acquired an 11% stake worth $2 billion in U.S. electric-truck maker Nikola. The truck maker’s shares surged 45.9%.

The Internals

As reported by Reuters, declining issues outnumbered advancing one on the NYSE by a 2.57-to-1 ratio; on the NASDAQ, a 1.57-to-1 ratio favored decliners.

The S&P 500 posted no new 52-week highs and 2 new lows; the NASDAQ Composite recorded 28 new highs and 45 new lows.