Megacap Tech Stocks Drive Nasdaq to Biggest Tumble Since March

(Bloomberg) — The megacap tech shares that drove stocks to record after record plunged Thursday as bears reclaimed the upper hand on U.S. equity markets, at least for a day.

The Nasdaq 100 sank almost 6% and posted its biggest rout since March. Apple Inc., Tesla Inc. and Inc., among the biggest contributors to the historic five-month rally, lost at least 6.1%. The index had gained in 11 of 13 sessions to notch records almost daily, defying bears who warned that valuations had become too stretched.

Highlighting the narrowness of the unwind, an equal-weight version of the S&P 500 that gives Coty Inc. just as much clout as Microsoft Corp. lost only a third of the market cap-weighted version in the biggest performance gap since July.

Signs of danger mounted throughout the past week, as bears all but vanished from the market and measures of bullish sentiment reached levels last seen in the dot-com craze. Relative strength indicators spiked into overbought territory and the Nasdaq 100 traded 30% above its 200-day moving average. So insatiable had the appetite for tech shares become that Apple and Tesla surged Monday just by lowering their share prices via stocks splits.

“The tech stocks were way too overbought,” said Alec Young, chief investment officer at Tactical Alpha LLC. “Going forward, the market will be led by other things. Tech will participate, but I don’t think it will be leadership, you can’t justify further valuations.”

Investors have flocked to megacap technology shares for their large cash balances and Covid-beneficiary qualities in 2020. So much so that the Nasdaq 100 has added $1.6 billion to its market-cap each hour since March, according to Bank of America Corp.

As some of the year’s best performers tumbled, more economically-sensitive industries including banks and energy gained. Stocks that stand to benefit most from an economic reopening, including airlines and cruises, surged too. Carnival Corp. and Norwegian Cruise Line Holdings jumped.

Yet even as value shares climbed, so too did bonds. 10-year Treasury yields slipped below 65 basis points as investors snapped up safe-haven assets.

After flirting with $12,000 earlier in the week, Bitcoin also retreated Thursday, falling around 6% to the lowest level since July. The world’s largest digital currency has largely been trading in tandem with riskier assets, falling when stocks fall and vice versa.

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