U.S. stocks tumbled on Thursday, reversing early gains as investors continued to rotate away from high-priced megacap growth stocks and second-quarter earnings season gathered steam.
All three major U.S. stock indexes suffered losses, and the blue-chip Dow fell the most, halting a series of consecutive record closing highs. The Canadian benchmark stock index also closed lower for the second day in a row, pressured by declines in technology and metal mining shares.
The sell-off resumed a day after the Nasdaq posted its biggest one-day drop since December 2022 and the chip sector suffered its largest daily percentage plunge since the pandemic-related shutdown panic of March 2020.
But anxiety remained elevated. The CBOE Market Volatility index, often called the “fear index,” touched its highest level since early May.
“What’s different from [Wednesday] is you did see money going into other sectors ... but today it’s a pretty broad selloff,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.
The Russell 2000 fell for the second day in a row after an apparent rotation into smallcaps sent the index soaring 11.5% in its most robust five-day gain since April 2020.
“Over the last two weeks we’ve seen a rotation into other sectors including midcaps and smallcaps, which have been huge laggards,” Ghriskey added. “But today it’s reversing. The market is flailing around trying to find a direction.”
“Investors (are) just pulling back and saying ‘we’re going to cash out now, it’s been a great run.’ They’re unsure what’s going to happen in terms of politics,” Ghriskey said.
In economic news, U.S. initial jobless claims data landed above analysts’ estimates, providing further evidence that the labor market is softening. This is a necessary step toward putting inflation on a sustainable downward path, according to the U.S. Federal Reserve.
The Dow Jones Industrial Average fell 533.06 points, or 1.29%, to 40,665.02, the S&P 500 lost 43.68 points, or 0.78%, to 5,544.59 and the Nasdaq Composite dropped 125.70 points, or 0.7%, to 17,871.22.
The S&P/TSX composite index ended down 124.41 points, or 0.5%, at 22,726.76. It posted an all-time high on Tuesday.
“I don’t think there is any specific catalyst,” said Barry Schwartz, chief investment officer at Baskin Wealth Management. “We’ve had a hell of a run up and this is just the pause that refreshes.”
“The elements are still in place for multi-year strong returns on markets. Inflation has been tamed, interest rates I’m certain are going to be cut globally in the next few months or so ... it’s just we got pretty spicy in terms of valuations for a lot of companies,” Schwartz said.
The TSX materials group, which includes metal miners and fertilizer companies, lost 2% as the prices of gold and copper fell, with the latter tumbling to a three-month low. Technology was down 1.1% and consumer discretionary ended 1.4% lower.
In the U.S., of the 11 major sectors in the S&P 500, health-care stocks suffered the largest percentage decline, while energy stocks were the sole gainers.
Domino’s Pizza tumbled 13.6% after falling short of estimates for quarterly same-store sales.
Homebuilder D.R. Horton beat profit estimates and delivered more new homes than expected, but tightened its annual forecast. Its shares jumped 10.1%.
The move also lifted the Philadelphia SE Housing index to a record high.
Warner Bros Discovery jumped 2.4% following a report that the company had discussed a plan to split its digital streaming and studio businesses from its legacy TV networks.
Streaming pioneer Netflix lost ground in extended trading after posting quarterly results.
Declining issues outnumbered advancing ones on the NYSE by a 3.43-to-1 ratio; on Nasdaq, a 3.49-to-1 ratio favored decliners. The S&P 500 posted 76 new 52-week highs and two new lows; the Nasdaq Composite recorded 160 new highs and 56 new lows. Volume on U.S. exchanges was 12.14 billion shares, compared with the 11.8-billion average for the full session over the last 20 trading days.
Reuters, Globe staff
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