US stock markets continued to fall on Tuesday, wiping out all of 2018’s gains as a slide in technology stocks grew into a wider selloff and fears of a trade war with China worried investors.
The Dow Jones Industrial Average lost 555 points in New York, a slide of 2.2% and the Nasdaq, home to Amazon, Facebook and many other tech giants, was down another 1.7% following sharper falls on Monday.
The leading tech companies have now lost a combined $1tn in value since their year highs.
But what started as a sell-off of high-flying tech companies spread on Tuesday as the oil price tumbled and investors sold investments in retailers, energy companies and bitcoin. US markets rallied briefly but have now erased all the gains they have made this year.
Analysts said there were likely to be more wild swings to come. “I don’t think Santa Claus is going to waltz in and give us a rally for Christmas,” said Michael Antonelli, managing director of institutional sales trading at Robert W Baird in Milwaukee.
The wider US economy still looks rosy. Unemployment is at levels unseen since the Vietnam war, business confidence is high and interest rates low despite a series of small increases. But stock markets are often a leading indicator of economic trends and investors see trouble ahead.
“Many of the metrics are already at the extremes,” said Jack Ablin, chief investment officer of Cresset Capital. “In many respects we are at the North Pole. No matter what step we take it’s going to be south.”
Much of the fall has been driven by troubles at the so-called Faang companies (Facebook, Apple, Amazon, Netflix and Google) whose phenomenal growth had driven stock markets to record highs.
Apple and then Amazon became the first companies to be valued at over $1tn earlier this year. Apple’s value has since shrunk by $161bn as fears have grown that iPhone sales are stalling. Amazon has lost $269bn following an announcement that its retail business was slowing.
Investors have been “throwing growth stocks and tech in the trash”, said Antonelli. “It’s not that there is new news. It’s tension and nervousness.”
The sheer size of the tech companies had propped up the stock market rally and their recent wobbles were exposing “deterioration” in the wider market, said Ablin. Corporate America has been buying its own shares, and boosting share prices as a result, at a record-setting rate – $115bn of stock in the first three-quarters of 2018. The Federal Reserve’s decision to keep rates rising is likely to cap that trend, said Ablin.
Tuesday’s sell-off saw some tech companies, including Netflix, bounce back but other sectors dropped. After the retailer Target released its latest results. Chief executive Brian Cornell said there was absolutely “no sign” that consumer spending was cooling ahead of the festive season but investors reacted badly to news its earnings were less than expected. Shares fell 10%, dragging the rest of the retail sector down with it.