U.S. Stocks Slump on Tech Worries
Declines in major U.S. benchmarks follow disappointing sales from major tech firms
A tumultuous week for markets around the world ended with a rocky Friday session, putting the S&P 500 on the cusp of correction territory as investors continued an October retreat from risky assets.
As stocks tumbled in early trading, the benchmark stock index fell nearly 3% to breach the level that would place it 10% below last month’s record. But as was the case for much of a whirlwind week marked by intraday dips and sharp rebounds, stocks stabilized—before slipping again in the final hour of trading.
Although stocks recovered some of their early declines, all three major U.S. stock indexes head into the last three sessions of October on track for their worst month in more than eight years.
Worries about corporate revenue peaking and a slowdown in China and Europe potentially spilling over into the U.S. economy have sent stocks into a tailspin. Fast-growing internet firms have been some of the hardest hit during the turmoil, leading analysts to question whether companies that previously seemed immune to global growth fears can continue surging ahead.
Quarterly sales from Amazon.com and Google parent Alphabet disappointed investors, sending the two stocks sharply lower Friday and pushing the tech-heavy Nasdaq Composite to its worst week since March.
“Once you start seeing a slowdown in revenue, it makes sense that those stocks could fall, but what’s been upsetting is you see everything coming down,” said Craig Hodges, portfolio manager for Hodges Funds. “I’m really amazed at some of the prices I see.”
Mr. Hodges said he has been buying shares of materials stocks and home builders that have been engulfed by this week’s selling and are among the market’s worst performers this year.
The S&P 500 dropped 46.88 points, or 1.7%, to 2658.69 on Friday. A dip of 0.8% next week would put it in correction territory for the first time since February. The Dow Jones Industrial Average declined 296.24 points, or 1.2%, to 24688.31.
The S&P 500 and the blue chips again turned negative for the year with Friday’s declines, and narrowly avoided their worst week since March following severe declines two weeks ago.
The Nasdaq Composite fell 151.12 points, or 2.1%, to 7167.21, paring much of Thursday’s rebound and putting it down 11% for the month.
Shares of Amazon slumped $139.36, or 7.8%, to $1,642.81 to approach a bear market—characterized by a decline of at least 20% from a recent high—while Alphabet fell nearly 2%. Netflix slumped to bring its October declines to 20%, and Facebook and Apple, which both report earnings next week, also slipped.
With Amazon’s drop, the e-commerce company’s market value fell to roughly $800 billion, putting it behind Microsoft as the second-largest U.S. company after Apple.
After Amazon hit a $1 trillion market cap in early September, some analysts had anticipated it would soon overtake Apple as the world’s largest publicly traded company. But investors have said weaker-than-expected revenue has stoked fears about softening global demand.
This month’s selloff in the so-called FANG stocks—Facebook, Amazon, Netflix and Google parent Alphabet—has taken nearly $350 billion off the group’s market value, according to Dow Jones Market Data.
In addition to Amazon and Alphabet, lackluster results and forecasts from executives at a wide swath of companies swung stocks. Disappointing reports from Caterpillar and 3M battered major indexes earlier in the week, while poor sales targets from chip maker Texas Instruments hurt the semiconductor group. Nearly half the companies in the S&P 500 have posted third-quarter results, with almost 60% exceeding sales expectations, below the one-year average of 73%, according to FactSet.
The trend of pockets of weakness widening to engulf the broader market has some analysts predicting more turbulence ahead, as reports of weaker-than-expected consumption and higher input costs have surprised some investors.
“It has brought people to wonder, ‘Are these fantastic fundamentals fading?’” Jim Paulsen, chief investment strategist at Leuthold Group, who has recommended this year reducing stock positions and buying beaten-down commodities and emerging-market assets. Mr. Paulsen predicts U.S. stocks will fall further in the coming weeks.
Data Friday showed strong spending powered a 3.5% increase in U.S. gross domestic product in the third quarter, although a warning sign about the outlook emerged in the form of weak business investment. Tepid housing and auto sales also continue to hang over corners of the market ahead of next week’s jobs report.
Just 28% of individuals think stocks will be higher six months from now, down 6 percentage points from last week and the lowest level since the start of July, according to the American Association of Individual Investors.
Victoria Fernandez, chief market strategist at Crossmark Global Investments, said she started receiving more client calls later in the week as the selloff deepened.
“We’ve had a couple of days of pullbacks, and now we’re getting calls asking, ‘Is this the time to go to cash?’” she said. “We’re trying to walk them through why they need to sit tight.”
Some analysts said they are waiting until after next month’s midterm elections, typically a boon for stocks, to decide how to react to the recent volatility. Many companies will resume sizable stock buybacks following corporate earnings reports, and trade discussions between the U.S. and China are continuing.
But other investors’ anxieties have already reached a fever pitch, as the swiftness of this week’s pullback has rekindled fears of the 2008 financial crisis and the dot-com bubble in 2000.
“There are the less rational, significantly more emotional” investors, said Hugh Johnson, chairman of Hugh Johnson Advisors LLC, a wealth-management firm in Albany, N.Y. Mr. Johnson added that more of his clients have been pushing to sell stocks than buy. “They simply want to reduce equities, period. They worry about a repeat.”
—Daniel Kruger and Michael Wursthorn contributed to this article.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
Appeared in the October 27, 2018, print edition as 'S&P 500 Flirts With Correction in Volatile Week.'