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Wall Street’s biggest drop in almost four weeks points to early pressure on Australian stocks following weak US employment data and poorly-received corporate earnings.
ASX SPI200 index futures sank 52 points or almost 0.9 per cent as tech stocks sold off and gold hit an all-time high.
The S&P 500 skidded 40 points or 1.23 per cent to its heaviest loss this month. The decline broke a four-session winning run.
The Dow shed 354 points or 1.31 per cent. The Nasdaq bore the brunt of the selling, falling 245 points or 2.29 per cent as the market-leading ‘Big Tech’ group of stocks tumbled.
Tech stocks have been the big winners from the pandemic market rebound, but have come under pressure in recent weeks amid questions over inflated valuations as the Nasdaq pushed further into record territory. This earnings season may be delivering an answer investors would prefer not to hear. Microsoft and Tesla both took heavy hits despite broadly positive quarterly updates yesterday. Microsoft lost 4.4 per cent and Tesla 5 per cent.
“Tech stocks were simply wildly overbought, overowned, and overvalued,” Adam Crisafulli of Vital Knowledge wrote in a note. “And there probably wasn’t anything they could have done differently with earnings to spur further gains.”
Both companies fell despite beating earnings expectations. Investors appeared to take the market response as a signal to exit the wider sector. Apple dropped 4.6 per cent following reports it is under investigation in several US states for allegedly deceiving customers. Amazon shed 3.6 per cent, Alphabet 3.1 per cent, Facebook 3 per cent and Netflix 2.5 per cent. Intel tumbled 9 per cent in after-market trade after reporting earnings this morning.
Also concerning investors was news jobless claims ticked higher last week for the first time since late March, sharpening fears about stubbornly high unemployment. Initial claims increased by 109,000 to a seasonally-adjusted 1.42 million.
“To put these data in perspective, before the pandemic surge, the highest single weekly tally ever was 695,000 in 1982,” Josh Shapiro, chief US economist at MFR, told MarketWatch. “Now, more than four months into the crisis, initial claims are still running at an astonishing 1.4 million per week.”
Three sectors advanced against the trend: financials +0.2 per cent, consumer staples +0.2 per cent and utilities +0.1 per cent. The tech sector sagged 2.6 per cent and consumer discretionary 2 per cent.
Small caps outperformed the broader market: the Russell 2000 index closed dead flat. Airlines also beat the trend: the S&P 1500 airlines index climbed 1.3 per cent.
The Dow Jones index of gold miners edged up a modest 0.3 per cent despite news gold made its long-awaited move into record territory. The front-month contract settled at US$1,889.10 an ounce, an all-time closing high for front-month contracts, according to MarketWatch. The more active August contract settled just $1.90 shy of a record after trading above the old September 2011 benchmark.
Australia’s big two miners faced stiffening headwinds as the night wore on. Rio Tinto lost a modest 0.08 per cent in the UK, then a heavier 1.24 per cent in the US.bhp BHP’s US-listed stock fell 0.9 per cent after its UK-listed stock had added 0.38 per cent. The spot price for iron ore landed in China imporved 80 cents or 0.7 per cent to US$111.20 a dry ton.
Oil sold off with equities as a rise in coronavirus cases weighed on the demand outlook. Brent crude settled 98 cents or 2.2 per cent lower at US$43.31 a barrel.
A decline in London Metal Exchange stockpiles helped lift copper. Benchmark copper climbed 1 per cent to US$6.570 a tonne. Aluminium rose 0.6 per cent, nickel 4.2 per cent, lead 1.2 per cent, and zinc and tin 1.3 per cent.
The S&P/ASX 200 inched higher yesterday despite a dour federal budget update and signs that Victoria’s COVID-19 breakout continues to widen. The index gained 19 points 0.3 per cent.
The dollar retreated 0.6 per cent this morning to 70.97 US cents.
