Tech stocks led the recent slump for the major indexes. That brought the market to correction territory, but the bull market could keep going.
Should You Be Worried about the Slump for Major Indexes?
Investors employing long-term trading don’t need to be worried about short-term glitches. That’s exactly what you learn while trading stocks online. But still, it is hard to ignore what happened at the beginning of the second week of September.
The Recent Tech Slump
We have been recently seeing a tech slump. On Tuesday, as the markets reopened after a three-day weekend, Dow Jones dropped 2.3%, 632.42 points, to 27,500.89. The S&P 500 dropped 2.8%, 95.12 points, to 3,331.84. Nasdaq too dropped 4.1%, 465.44 points, to hit 10,847.69. This continued from the drops of the previous week. In fact, the Nasdaq dropped 10% from its record close of 12,056.44 on September 2.
The first week of September saw the Nasdaq Composite ending at 11,313.13 for the greatest weekly decline it has experienced since March. That week also saw the Dow Jones losing 1.8%, closing at 28,133.31. The S&P 500 had a 2.3% drop to finish at 3,426.96. All three indexes suffered there greatest weekly falls since June. Nasdaq thereby entered correction territory, which is a situation where stocks end 10% lower at least from their previous closing high. In fact, data reveals that this was the quickest correction for the index on record. It took just three sessions for Nasdaq to get there.
Factors Contributing to the Slump
With the Covid-19 pandemic slowing down economic recovery, high valuations being showered on technology companies, and Trump aggravating US-China trade by threatening to end the United States’ manufacturing reliance on China; it is unclear where are we heading due to these types of events occurring.
Major Tech Stocks Led the Slump
The prime contributors to Nasdaq’s reversal were falls by some of the major tech components making up the index – Alphabet ($GOOG, $GOOGL), Amazon ($AMZN), Microsoft ($MSFT), Facebook ($FB) and Apple ($AAPL). These were the stocks that had received extremely high valuations. Investors started worrying whether the sector gains brought about by the market momentum were leading valuations far beyond sustainable levels.
But what investors need to watch out for is whether the major US indexes can grow apart from the tech giants. It’s important to remember that the world of the pandemic is dependent on these tech stocks for its existence. With these stocks dropping, what scope is there for these indexes? Peter Oppenheimer of Goldman Sachs, however, says that the bull market could still go some way though he believes a selloff in the region of 10% can’t be avoided.