On a Tuesday in early September 2020, the tech-heavy Nasdaq slid into correction territory after a three-day rout that dragged the wider market down with it. The fall was sharpest in the names that had carried the year's rally, and it was sharpened further by the exclusion of Tesla from the S&P 500, which turned a speculative hope into a rapid reckoning. Behind the numbers lies a familiar human pattern, in which prices that climbed faster than the foundations beneath them eventually meet a moment of doubt. Whether this is a passing reset or the opening of a deeper correction is a question the
Tech Rout Pushes Nasdaq Into Correction as Tesla Plunges 21% and Dow Falls 632 Points
Tesla's biggest one-day drop on record
Mark
Why does Tesla's drop matter so much beyond one stock?
Mimi
It fell 21.1%, its biggest one-day fall on record, and the cause was being left out of the S&P 500. Investors had priced in the inclusion.
Mark
So the fall was about disappointed expectations?
Mimi
That's how the report frames it, as a sign of risk in an overheating Nasdaq trade.
Luke
Careful, though. The Tesla snub is presented as the trigger for Tesla's drop. The broader selloff has several named factors, and the report doesn't say how much each contributed.
Mark
What about SoftBank?
Mimi
Its shares fell 7% Monday after it was identified as a big options buyer betting billions on tech. If it curbs those bets, the tech trade loses some firepower.
Luke
That's conditional. Nothing says SoftBank is curbing anything yet.
Mark
And the forecasts of more declines?
Mimi
Maley says a correction of more than 10% is probable, and Bittles points to signs of excessive optimism.
Luke
Those are individual strategists' views, not outcomes. And the Nasdaq is still up more than 70% from its March bottom.
El Pulso
- The Nasdaq plunged 4.1% on the day and 10% over three sessions, pushing the tech index into correction territory.
- Tesla shed 21.1%, its worst single day on record, after being passed over for S&P 500 inclusion.
- Apple, Microsoft and other market leaders of 2020 sold off hard, with the Dow component down more than 14% in three days.
- Chip stocks were battered as US-China trade tensions simmered, with Applied Materials down 8.7% and Nvidia down 5.6%.
- SoftBank's large options bets now hang in the balance, and strategists warn that a correction of more than 10% remains likely.
On a Tuesday in early September 2020, the tech-heavy Nasdaq slid into correction territory after a three-day rout that dragged the wider market down with it. The fall was sharpest in the names that had carried the year's rally, and it was sharpened further by the exclusion of Tesla from the S&P 500, which turned a speculative hope into a rapid reckoning. Behind the numbers lies a familiar human pattern, in which prices that climbed faster than the foundations beneath them eventually meet a moment of doubt. Whether this is a passing reset or the opening of a deeper correction is a question the market has not yet answered.
The Nasdaq Composite closed Tuesday at 10,847.69, down 4.1% on the day and 10% across three sessions. It was the index's worst three-day stretch since August, and it pulled the Dow down 632 points and the S&P 500 down 2.8%, leaving the broader market nearly 7% lower over the same period.
Tesla bore the sharpest blow. Its shares plunged 21.1%, the largest one-day drop in its history, after S&P Dow Jones Indices declined to add the fast-rising stock to the S&P 500. Investors had bet on an official endorsement, and its absence exposed how much of the rally rested on expectation rather than substance.
The pain spread through the market's leaders. Apple fell 6.7%, Microsoft also dropped 6.7%, and the S&P 500 tech sector closed more than 11% below its early-September high. Chipmakers faced added pressure from US-China tensions, with Applied Materials and Nvidia leading the decline.
Many on Wall Street point to stretched valuations, heavy margin debt and bullish sentiment as signs that the market had run ahead of itself. Some strategists warn that a correction of more than 10% is still probable. For now, traders are watching whether SoftBank scales back its large options bets and how far the trade dispute reaches into the semiconductor sector.
The Nasdaq Composite closed Tuesday at 10,847.69, down 4.1% on the day and 10% across three sessions, enough to put the tech-heavy index in correction territory. It was the Nasdaq's worst three-day stretch since August, and it dragged the broader market along with it.
The Dow Jones Industrial Average dropped 632.42 points, or 2.3%, to finish at 27,500.89. The S&P 500 slid 2.8% to 3,331.84. Over three days the S&P is down nearly 7%, its worst such run since June.
Tesla took the hardest hit. The stock plunged 21.1%, its largest one-day drop on record. The trigger was S&P Dow Jones Indices' decision, announced after the bell on Friday, not to add the surging and speculative stock to the S&P 500. Investors had been betting on inclusion, hoping for an official stamp of approval on the rally. The snub, the report notes, shows the risks in an overheating Nasdaq trade.
Apple led the large tech names lower, falling 6.7%. Over three sessions the Dow component has dropped more than 14%, which Bespoke Investment Group says is its worst three-day stretch since October 2008. Microsoft also fell 6.7%, Alphabet lost 3.6%, Zoom Video fell 5.1%, and Netflix closed 1.8% lower. Facebook and Amazon were each down more than 4%. The S&P 500 tech sector dropped 4.6% and closed more than 11% below the all-time high it set on Sept. 2.
Semiconductors were under extra pressure from simmering U.S.-China trade tensions. Applied Materials fell 8.7%, Nvidia 5.6%, Advanced Micro Devices 4%, and Micron 3.2%. The VanEck Vectors Semiconductor ETF closed 4.4% lower. On Tuesday China accused the U.S. of "bullying" as it launched a global data security initiative, while Washington continues to pressure China's largest tech firms and lobby other countries to block them. President Donald Trump has also recently entertained the idea of "decoupling" from China.
Another thread involves SoftBank. Its shares dropped 7% in Japan on Monday after it was identified as the big options buyer behind a multibillion-dollar bet on tech stocks continuing to climb. The tech trade could lose some firepower if SoftBank were to curb those bets.
The selloff followed a rough week. Wall Street had just logged its first weekly decline in six weeks, driven by steep losses in Amazon, Apple, Microsoft and Facebook, the market leaders of 2020. The Nasdaq had its worst week since March 20, and the Dow and S&P 500 had their biggest weekly losses since June. Even after the pullback, the Nasdaq is up more than 70% from its March bottom.
Many on Wall Street trace the weakness to worries that the run-up had pushed valuations to unsustainable levels. Bruce Bittles, chief investment strategist at Baird, said mega-cap valuations are stretched far beyond historical levels, and pointed to high margin debt, fully invested mutual funds, record call volume in CBOE options data, and bullish Wall Street letter writers as signs of excessive optimism that often precedes a consolidation or correction. Matt Maley of Miller Tabak wrote in a Sunday note that it would take more than a mild decline to work off those conditions, and that a correction of more than 10% remains probable. He cited extreme overbought readings in some mega-cap tech names and elevated S&P 500 valuations.
What to watch now: whether SoftBank pulls back its options positions, and how the U.S.-China dispute weighs on chip stocks.
Citas Notables
Excessive optimism in the market often suggests a consolidation or correction phase is likely.— Bruce Bittles, chief investment strategist, Baird (paraphrased)
A correction of more than 10% is probable.— Matt Maley, chief market strategist, Miller Tabak
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