Stocks drop amid renewed pressure on tech sector
Stocks traded lower Thursday as large-cap technology shares faced renewed pressure.
The Dow fell 35 points, with Apple contributing the most losses. The 30-stock index briefly fell more than 100 points earlier in the session.
The S&P 500 dropped 0.45 percent, with information technology sliding more than 1 percent to lead decliners. The Nasdaq pulled back 0.85 percent.
Shares of Facebook, Amazon, Apple, Netflix and Alphabet all traded lower. Alphabet shares also fell after being downgraded by analysts at Canaccord Genuity.
Technology has been on a tear this year, with the S&P tech sector rising about 18 percent to easily outperform other industries. But earlier this week tech completed its biggest two-day decline since December.
In a note to clients Thursday, Jefferies strategist Sean Darby compared the technology stock run we’re seeing now to the “melt-up” that occurred in the late-1990s. Darby noted that both periods had declining inflation and low rates, alongside a thriving digital economy. But ultimately that didn’t end well.
“After Y2K occurred, the Fed lifted rates which eventually evaporated the cheap financing that had underwritten the technology boom,” Darby said.
Investors also continued to digest the Federal Reserve’s decision to raise interest rates and lay out a plan to unwind its $4.5 trillion balance sheet.
The U.S. central bank hiked rates for a second time this year, as was widely expected, but some investors doubted the Fed’s plans.
“From a general perspective, [the Fed announcement] was fairly in line with expectations,” said Eric Stein, co-director of global income at Eaton Vance. “That being said, after a weaker-than-expected CPI print, it may have seemed hawkish to some.”
On Wednesday, the Labor Department said the consumer price index — a key measure of inflation — fell 0.1 percent in May. The data dragged the benchmark 10-year note yield to its lowest levels in seven months. On Thursday, the yield hovered near 2.16 percent.
Stein added he thinks the Fed will start reducing its balance sheet in September, “which means the next rate hike may not come until December.”
There was a slew of economic data released Thursday, including weekly jobless claims, which came in at 237,000.
The Philadelphia Fed business index hit 27.6 in June, while the Empire State manufacturing survey reached 19.8.
“Most of the economic news has surprised to the downside but the Fed is still comfortable with raising rates,” said Bruce Bittles, chief investment strategist at Baird. “At the same time, it seems like we’ve lost some of that leadership from those six-to-seven high-flying stocks.”