U.S. stocks dove again on Tuesday, with technology shares, which have been the market’s highest fliers this year, adding to their worst weekly run in more than five months.
Shares of electric car company Tesla fell 21%, with investors caught off guard by the company’s exclusion from the S&P 500. Tesla’s plunge only steepened after General Motors said it would invest $2 billion in electric-truck maker Nikola.
Many had been expecting Tesla to join the closely watched stock market index this year. But the S&P Dow Jones Indices announced on Friday that it was instead adding online retailer Etsy, automatic test equipment manufacturer Teradyne and medical technology company Catalent to the benchmark’s lineup.
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On Tuesday, the Nasdaq tumbled 4.1%, or 465 points, the S&P 500 lost 2.8%, or 95 points, and the Dow shed 632 points, or 2.3%. Friday also saw steep losses in major technology stocks, snapping a five-week winning streak for Apple, Amazon and others.
Unsustainable heights
Some Wall Street analysts are making the argument that 2020’s unrelenting rally in tech has propelled shares to unsustainable heights, with the Nasdaq still up 70% from March even after last week’s retreat.
“The question from here, then, is whether the froth being cut out of the market is a well needed shaking of the tree that recharges things for another run higher or this is it,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, noted in emailed comments. “No one questions the fundamentals of tech right now, to highlight that sector, but the price to be paid for that growth.”
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Tesla’s shares have risen more than 300% in 2020. That makes the car company the second-best performer of the Nasdaq 100 after virtual conferencing software Zoom Video Communications in 2020. Tesla’s market valuation now far surpasses that of major automakers.
But shares of Tesla have headed south in the past week after the company said it would sell as much as $5 billion in shares and its second-biggest stakeholder reduced its investment.
Other hot Nasdaq stocks also fell, with Zoom down 5.1% and Apple declining nearly 7%.
GM partnership with Nikola
Conversely, shares of Nikola jumped more than 40% and GM rose 7.9% after the latter announced it would take an 11% stake in the startup company to produce its hydrogen fuel cell electric pickup truck, the Badger.
“This news is a huge shot in the arm for Nikola and cements credibility not just for its Badger production slated to begin by the end of 2022 but for its hydrogen fuel cell ambitions and semi truck vision going forward,” Wedbush Securities analysts wrote Tuesday in a note to clients.