US stocks rebound after three-session tech rout
Wall Street bounced back on Wednesday from the worst sell-off for US technology stocks since March.
The tech-weighted Nasdaq Composite snapped a three-session rout to close 2.7 per cent higher. The broader S&P 500 added 2 per cent, taking its cues from its European peers.
The move higher followed the Nasdaq tumbling 4.1 per cent on Tuesday, which was deemed a correction as defined by a more than 10 per cent decline from a recent high.
Tesla trimmed its recent losses and gained 11 per cent, having slumped 21 per cent on Tuesday in its worst-ever trading day, while Apple and Microsoft both rose about 4 per cent. The rally follows concerns in recent days about frantic activity in derivatives market, where tech stock volumes have ballooned.
“Activity in the options market may have been responsible for a portion of the move in volatility heading into the sell-off we just witnessed,” said Mike Lewis, head of Americas cash equities trading at Barclays. A recent reduction in options price volatility was “suggesting the sell-off is likely done — confirming a correction rather than a reversal”, he said.
The benchmark Stoxx Europe 600 share index rose 1.6 per cent by the close of trade in Europe. The UK’s FTSE 100 pushed up more than 1.4 per cent and Germany’s Xetra Dax jumped 2.1 per cent to leave it little changed for the year to date.
Joe Little, chief strategist at HSBC Global Asset Management, said that the resilient performance of equities and muted reaction in the bond market was a positive sign that the tech rout had not spread panic to other corners of the market.
“It looks similar to the phase in early June when we saw a little bit of ratcheting down and consolidation,” Mr Little added. “The fact that we haven’t seen a spillover into other asset classes is important.”
US Treasury yields edged higher following a $35bn sale of benchmark 10-year notes. The bonds were sold at a yield of 0.70 per cent, slightly higher than the 0.67 per cent fetched at the previous auction. The yield on 10-year US Treasuries rose by around 0.1 percentage point to 0.70 per cent.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said stocks remained attractive despite concerns that the recent ramping-up of options activity on large tech names could feed volatility.
“Taking the prior rally into consideration, this still leaves the indices at levels seen just four weeks ago,” he said. “Central bank liquidity is ample and has kept bond yields low.”
Tech shares had dragged equities lower across Asia-Pacific, with Japan’s Topix closing down 1 per cent and Australia’s S&P/ASX 200 ending 2.2 per cent lower.
Shares in SoftBank fell as much as 7 per cent in Tokyo before closing 2.9 per cent lower. Investors are concerned that SoftBank’s multibillion-dollar derivatives-based trading strategy has given it outsized exposure to the recent surge in US tech shares.
The drop in the Nikkei left traders almost certain the Bank of Japan would make a large purchase of exchange traded funds during the session, its normal strategy for supporting the market on days when it drops significantly.
In China, the CSI 300 benchmark stock index fell 2.3 per cent. In Hong Kong, the Hang Seng retreated 1 per cent as Chinese ecommerce group Alibaba shed as much as 2.7 per cent.
“A market fuelled by central bank largesse, economic surprises and record earnings beats in the last few months was never going to maintain its heady pace forever,” said Kerry Craig, a global market strategist at JPMorgan Asset Management. But he added that “not all shocks are a warning of an impending collapse in risk sentiment”.
In currencies, the euro gained 0.2 per cent against the dollar to $1.1804 on a Bloomberg report that the European Central Bank’s growth and inflation projections due on Thursday will only change slightly.
A weaker dollar meant oil prices clawed back some ground, having dropped this week on worries that a resurgence in coronavirus cases would hobble a recovery in energy demand. Brent crude, the global benchmark, advanced 2.3 per cent to $40.69 a barrel.