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Nasdaq retreats as tech stocks lose favour

Sinead Carew
·3-min read

The Nasdaq has closed lower with investors selling off technology stocks that benefited from virus lockdowns and favouring sectors that suffered most during the pandemic on optimism a vaccine will rescue the economy.

The heavyweight technology consumer discretionary sectors and communication services languished on Tuesday while investors preferred small caps and economically sensitive energy and industrials sectors as well as value stocks in consumer staples.

The main US indexes had hit intraday peaks on Monday after Pfizer Inc said a vaccine it is developing with German partner BioNTech SE was 90 per cent effective against COVID-19.

"It's the reopening trade. To the extent the economy can reopen sooner rather than later the stay-at-home stocks won't be as valuable," said Jim Paulsen at The Leuthold Group in Minneapolis.

The Dow Jones Industrial Average rose 234.51 points, or 0.8 per cent, to 29,392.48, the S&P 500 lost 7.25 points, or 0.20 per cent, to 3,543.25 and the Nasdaq Composite dropped 164.62 points, or 1.41 per cent, to 11,549.16.

Amazon.com Inc, Facebook Inc and Microsoft , which have boomed during this year's work-from-home trend and powered Wall Street to new highs, extended Monday's losses and weighed on the tech-heavy Nasdaq during the session.

After hitting a record in Monday's session, the Philadelphia Semiconductor Index underperformed sharply on Tuesday with Nvidia and Xilinx falling hard.

And the S&P's value stock index, which tends to outperform coming out of a recession, was well ahead of the less economically sensitive growth index on Tuesday.

"Everybody's coming out of the woodwork saying the same thing that now is the time to be buying value" and selling technology said Robert Pavlik at Dakota Wealth in Connecticut.

"People believe the Pfizer vaccine is going to initiate a reopening of the economy forcing people back on the road, back to work and back into the stores," said Pavlik.

"There's some warrant to it but to see this kind of action is extreme."

Trading was also choppy at times as some investors monitored for election uncertainty after Secretary of State Mike Pompeo became the latest Republican to suggest Donald Trump would not concede the White House.

But Leuthold's Paulsen said most market participants have been largely ignoring Trump's complaints about the election outcome because he has not produced evidence of problems with vote counts.

President-elect Joe Biden hailed the vaccine progress but cautioned it would be "many more months" before widespread vaccination is available. Meanwhile, daily new US cases topped 100,000 for the sixth straight day.

Health Secretary Alex Azar said on Tuesday if Pfizer submits its interim vaccine to regulators as quickly as hoped, the government expects to start vaccinations in December.

A vaccine breakthrough may weaken the case for another large US fiscal stimulus bill, although some investors say that relief is still needed for struggling businesses.

Senate Majority Leader Mitch McConnell, a Republican, said on Tuesday he saw no need for a multitrillion-dollar coronavirus relief bill.