Tech stock slide drags Wall Street lower

Shares of big tech companies slid on Monday, with stocks such as Apple, Microsoft, Facebook and Amazon dragging the S&P 500 to its lowest close since late July.

The benchmark index fell 1.3 per cent, taking it more than halfway to an official correction — when stocks drop 10 per cent from their all-time high. Some of the index’s tech heavyweights propelled the decline.

Facebook was among the five worst-performing stocks on the S&P 500, declining 4.9 per cent as its Instagram, WhatsApp and namesake Facebook services suffered outages.

Pessimism about the company — and the broader tech industry — has been mounting in US financial markets in recent weeks, with the tech-heavy Nasdaq Composite down 7.5 per cent from a record high hit last month. It fell 2.1 per cent on Monday.

The declines have come as investors in the $50tn US stock market fret over higher interest rates and tighter monetary policy.

Tech companies had served as a haven for investors throughout the coronavirus pandemic but have been battered as policymakers at the Federal Reserve ready to begin removing crisis stimulus measures. That has sent yields on government bonds sharply higher in recent days.

High-growth tech stocks are particularly sensitive to rising interest rates, given their valuations rely on large and growing profits many years in the future. Higher interest rates on their own also make Treasuries more appealing to investors in search of income.

“Tapering is tightening for stocks even if it isn’t for the economy — the more important consideration for the Fed,” said Mike Wilson, Morgan Stanley equity strategist. “In short, higher real rates should mean lower equity prices.”

The yield on the US government’s benchmark 10-year Treasury, which rises when the note’s price falls, climbed 0.02 percentage points to 1.48 per cent. That put it just below a three-month high hit last week and up from roughly 1.3 per cent two weeks ago.

“We’re in an environment that feels like the opposite of Goldilocks,” said Cosimo Marasciulo, head of investment absolute returns at fund manager Amundi, referring to an economic environment where growth is healthy but inflation is contained. “We could be getting upwards pressure on inflation and on interest rates.”

In Europe, the Stoxx 600 index closed down 0.5 per cent, following a 2.2 per cent decline last week. London’s FTSE 100 fell 0.2 per cent. Hong Kong’s Hang Seng share index had earlier ended the day 2.2 per cent lower.

Those stock market moves came as US oil prices hit a seven-year high as producer group Opec+ stuck to existing output plans at its latest meeting, despite a surge in natural gas prices increasing oil demand. Members had agreed this summer to add 400,000 barrels a day of production each month until the end of next year.

West Texas Intermediate, the US oil benchmark, hit $78 a barrel, its highest level since 2014, before settling up 2.3 per cent at $77.62 a barrel. Brent, the international benchmark, rose to $82 a barrel for the first time in three years before settling at $81.26 a barrel, up 2.5 per cent.

US economic output is expected to moderate after a coronavirus vaccine-driven bounce in the first months of the year. Investors, meanwhile, have been gripped by threat of persistent inflation given rises in energy prices and severe supply chain disruptions caused by pandemic curbs and worker shortages.

Jay Powell, Fed chair, has signalled that the central bank will in November announce plans to reduce its monthly bond purchases after seeing progress in the labour market.

The next US non-farm payrolls report, due on Friday, would “probably be the catalyst to cement the November taper”, said Jim Reid, Deutsche Bank strategist. Analysts polled by Bloomberg expect to see that US employers hired almost half a million new workers last month.

The dollar index, which measures the US currency against six others, fell 0.2 per cent after touching a one-year high last week. The British pound added 0.5 per cent to $1.361.