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Stock markets slump as Wall Street rally runs out of steam

  • John Biers

    Agence France-Presse

New York, United States   /   Fri, September 4, 2020   /   08:47 am
Stock markets slump as Wall Street rally runs out of steam Traders work on the floor of the New York Stock Exchange (NYSE) in New York in this file photo. Wall Street's summer-long rally stumbled Thursday with high-flying tech shares leading the market sharply lower as investors cashed in amid worries about a bubble in prices. (Reuters/Jeenah Moon)

Wall Street's summer-long rally stumbled Thursday with high-flying tech shares leading the market sharply lower as investors cashed in amid worries about a bubble in prices.

The tech-rich Nasdaq Composite Index led the market lower following a sell-off in tech shares, ending at 11,458.10, down 5.0 percent.

The Dow Jones Industrial Average shed 2.8 percent to 28,289.17, while the  broad based S&P 500 tumbled 3.5 percent to 3,454.88.

The market was "overbought and due for a pullback," said Quincy Krosby, chief market strategist at Prudential Financial, who noted that September has historically been a bad month for the stock market.

Major European bourses joined in the selloff, with Paris, Frankfurt and London all declining.

Major United States stock indices enjoyed their best August in decades this year amid expectations that coronavirus vaccines and therapeutics will permit a strong economic recovery.

But analysts have cautioned that the market was due for a pause given elevated unemployment and economic uncertainty as the US continues to contend with world's worst coronavirus outbreak, and heading into the long holiday weekend investors cashed in.

Briefing.com analyst Patrick O'Hare hinted that a pullback was inevitable given concerns about excessive valuations following the surge in recent weeks.

"Let's not kid ourselves with the idea that worries about COVID-19, the election, diplomatic tension with China, or the fiscal cliff are the basis for this morning's weakness," O'Hare wrote early Thursday before the stock market opened.

"The basis for this morning's weakness is the realization that things are getting carried away in terms of trend exuberance and that some profit taking is in order."

The sell-off came after mixed US economic data Thursday that included a report showing slower services sector growth in August, bigger-than-expected drop in new jobless claims, record job cuts this year and an unexpectedly big trade deficit for July.

The reports come ahead of Friday's much-anticipated government jobs report for August, which economists expect to show a surge in hiring and a dip in the unemployment rate to below 10 percent.

The rally had been propelled by expectations for strong earnings growth in 2021 following fiscal and monetary stimulus measures. 

"Despite today's bloodbath, the underlying bullish trend remains intact even as the spike in volatility could be the start of a new phase of the recovery," said Gorilla Trades strategist Ken Berman.

But Krosby cautioned that Friday's session could also be rocky depending on the jobs report and traders "who may not want to go long over a long weekend."