Overnight, something strange happened over in the US. The tech-heavy US Nasdaq Composite (INDEXNASDAQ: .IXIC) Index fell a hefty 2.4%. That in itself isn’t too newsworthy (although it is a sizeable drop). No, what this test move means is that the Nasdaq is now officially in a ‘correction’. A correction is one of those rather superficial Wall Street terms that’s meant to dress up something bad as something good. A correction is a term given for a 10% or more drop in an index’s value. And since the Nasdaq has now dropped from around 14,095 points on 12 February to 12,609 after last night, the index is now down 10.54%. And that means we are now in correction territory.
What’s even more interesting though is how confined this ‘correction’ is to Nasdaq shares in particular. The broader S&P 500 Index (INDEXSP: .INX), which consists of both Nasdaq and New York Stock Exchange (NYSE) companies, is only down 2.88% over the same period. The Nasdaq and the NYSE are the two major share markets of the United States. The Nasdaq tends to hold most of the US’s tech stocks (such as the FAANGs), while the NYSE is home to most of the ‘old-school’ giants like Walmart Inc (NYSE: WMT) and Ford Motor Company (NYSE: F).
Put simply, it’s only tech stocks that are selling off with enthusiasm.
Tech sells off with a vengeance
Looking at what’s been going on, this becomes very obvious. Take tech darling Tesla Inc (NASDAQ: TSLA). Tesla shares are down a whopping 31% since 12 February. Amazon.com Inc (NASDAQ: AMZN) is down around 10% over the same period. Apple Inc (NASDAQ: AAPL) is down around 14%, while Netflix Inc (NASDAQ: NFLX) is down around 11%.
All in all, it hasn’t been a nice few weeks to own US tech stocks! This tech sell-off has also spilled over to the ASX. This morning, we reported on how the ASX tech sector is facing a bear market (a fall of 20% or more) if it falls too much lower. This has been exemplified by the performance of former ASX high-flyers like Afterpay Ltd (ASX: APT). Afterpay shares have fallen more than 30% in just the past month alone.
It’s hard to say exactly what is causing these seemingly-precipitous drops. But one could possibly put it down to the sector blowing off some steam after an incredible run up over the past few months. Rising bond yields are also especially problematic for tech stocks.
But even though a ‘correction’ is a scary thought for investors, the reality is that the Nasdaq is now back at levels that we were calling ‘all-time highs’ back in December. It’s hardly a time for panic.