U.S. stocks closed lower for a third straight session on Tuesday as heavyweight technology names extended their sell-off to send the Nasdaq into correction territory, while Tesla suffered its biggest daily percentage drop after the stock was passed over for inclusion in the S&P 500. The TSX also fell, with energy equities suffering the brunt of the selloff, although overall losses didn’t match the ferocity of what was seen on Wall Street.
The S&P/TSX Composite Index lost 118.49 points, or 0.73%, to 16,099.52. The energy sector fell 2.9 per cent in Toronto, but many of the most widely held Canadian oil stocks tumbled much further, with nine of the top 10 declining stocks in the S&P/TSX Composite Index belonging to the energy sector. Shares in Canadian Natural Resources Ltd., Suncor Energy Inc., Cenovus Energy Inc., Crescent Point Energy Corp., and Prairiesky Royalty Ltd. all fell by more than 8 per cent.
Investors bought the traditional safe havens of bonds and gold, sending yields lower. That, in turn, helped to support some rate-sensitive dividend stocks, whose yields can look more attractive as bond payouts fall. Utilities gained 1.36% for the day, telecommunications rose 0.72%, and basic materials rose 0.43%. But other sectors saw a sea of red, led by technology, with a 3% drop.
On Wall Street, each of the 11 major S&P sectors were lower, led by declines in technology and energy. Reports on Friday that SoftBank made significant option purchases during the run-up in U.S. stocks added to investor nervousness.
Technology once again dragged indexes lower with a drop of 4.59%, the third straight decline and worst three-day performance for the sector since mid-March. Even with the recent drop, the sector remains the best performer on the year.
“Things got expensive, they ran up, they got very concentrated and people got really giddy,” said Willie Delwiche, investment strategist at Baird in Milwaukee. “Everyone is all loaded up on one side, it doesn’t take much of a ripple to knock some apples off the cart.”
The Dow Jones Industrial Average fell 632.42 points, or 2.25%, to 27,500.89, the S&P 500 lost 95.12 points, or 2.78%, to 3,331.84 and the Nasdaq Composite dropped 465.44 points, or 4.11%, to 10,847.69.
Energy shares in the U.S. slumped 3.71% as oil prices fell below $40 a barrel. The U.S. crude oil price tumbled 8 per cent, as rebounding COVID-19 cases and a move by Saudi Arabia to cut its selling prices pointed to a prolonged period ahead of sluggish fuel demand.
Both West Texas Intermediate and Brent crude fell to levels not seen since June, breaking below the relatively narrow trading ranges of this summer.
Media reports of SoftBank’s option purchases also reminded investors that market makers might have billions of dollars' worth of long positions as hedges against options trades.
Wall Street’s rally, which has been fueled in large part by massive amounts of monetary and fiscal stimulus, screeched to a halt last week with the Nasdaq falling as much as 9.9% from its intraday record as investors booked profits after a run that lifted the index about 70% from its pandemic lows. Tuesday’s losses put the index down 10% from its closing record, confirming a correction began on Sept. 2.
At session lows on Tuesday, Facebook, Amazon.com , Apple, Tesla, Microsoft, Alphabet and Netflix had collectively lost more than $1 trillion in market capitalization since Sept. 2.
Tesla plunged 21.06% to suffer its biggest daily percentage drop as the electric-car maker was excluded from a group of companies being added to the S&P 500. Investors had widely expected its inclusion after a blockbuster quarterly earnings report in July. Up to Friday’s close, the stock had surged about 400% this year.
JPMorgan Chase & Co fell 3.48%, after a report it was probing employees who were allegedly involved in the misuse of funds intended for COVID-19 relief. The wider banks index lost 3.44%, also tracking Treasury yields.
A gauge of value stocks fell 1.84%, but outperformed the broader market and a 3.38%, decline in the growth index . Wall Street’s fear gauge climbed for the third time in four sessions.
Concerns over potential U.S. sanctions against China’s biggest chipmaker, SMIC, hit domestic suppliers, with the PHLX semiconductor index down 3.43%.
General Motors Co jumped 7.93% after it acquired an 11% stake worth $2 billion in U.S. electric-truck maker Nikola Corp. The truck maker’s shares surged 40.79%.
In the energy sector, stocks that produce and sell natural gas were further undermined by a 5 drop in natural gas futures in New York, which was tied to a rise in U.S. gas output and forecasts for cooler weather and lower demand in late September.
Coronavirus infections are rising in India, Great Britain, Spain and several parts of the United States, where the infection rate has not come under control for months. The rebound in illnesses could weaken the global economic recovery and sap fuel demand.
Labour Day weekend marked the end of U.S. summer driving season when gasoline demand is greatest, compounding both a supply and demand problem in the market, according to Bob Yawger, director of energy futures at Mizuho.
“With refiners dropping run rates in the coming weeks as turnaround [maintenance] season begins, crude storage is going to climb even higher than near historic highs,” Yawger said.
An exodus of speculative net long positions on crude oil is exacerbating the selloff, he added.
“The speculative community is bailing at once and the herd mentality is destroying the price of oil,” said Yawger.
On Monday, crude fell after Saudi Arabia’s state oil company Aramco cut the October official selling prices for its Arab light oil, a sign of softening demand.
“The Saudi price cuts announced Sunday made WTI unattractive to Asian buyers,” said Colorado-based energy analyst Phil Verleger of PK Verleger LLC.
Brent has traded lower for five days in a row and has lost more than 10 per cent since the end of August.
U.S. West Texas Intermediate (WTI) crude settled down $3.01 or 7.6%, at $36.76, earlier hitting lows not seen since June 15. Brent crude fell $2.23, or 5.3%, to $39.78 a barrel.
Still, oil has recovered from historic lows hit in April, thanks to a record supply cut by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+. The producers are meeting on Sept. 17 to review the cuts.
Read more: Stocks that saw action Tuesday - and why
Reuters, Globe staff
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.