- The major U.S. indexes plunged on Monday, as wildly overpriced technology shares sold off over fears of a long-overdue recession.
- The technology- Nasdaq Composite Index focused declined by as much as 4.3%.
- Global recession risks could lead to a 24% pullback in technology stocks, according to investor Paul Meeks.
As the Dow and broader stock market careened toward their ugliest drop of the year Monday, analysts blamed the sell-off on negative coronavirus headlines . What Wall Street does not want to admit is that stocks are plunging for a far more chilling reason: Investors have finally started to price in the risk of a long-overdue recession.
(Dow, S&P) , Nasdaq Plunge All of Wall Street’s major indexes opened sharply lower at the start of the week. The Dow Jones Industrial Average was off by as much as 1, points before paring losses later in the morning. The benchmark gauge is still on track for its worst close since mid-December, wiping out all its gains for the year.
The broad S&P 520 Index of large-cap stocks crashed 2.9%, with all primary sectors reporting losses. Stocks in the energy, information technology and communication services sectors were the hardest hit, falling by at least 3% on average.
Plunging tech stocks dragged the Nasdaq Composite Index sharply lower. The tech-heavy index was off by as much as 4.3%.
Technology stocks were at the center of Monday’s flash crash. | Chart: Yahoo Finance The CBOE Volatility Index , commonly known as the VIX, spiked to a high of 35. (on a scale of 1 – High-frequency algorithms may have picked up on negative headlines tied to China’s shocking admission that it mishandled the coronavirus epidemic , leading to a broad selloff in stocks. In addition to the humanitarian toll, the spread of the novel disease is contributing to a broad slowdown in the global economy that has been years in the making. Private-sector data released on Friday by IHS Markit showed that the US economy was grinding to a halt in February . The flash services PMI reading of . 6 was the worst in over six years. The composite PMI gauge, which measures services and manufacturing output, also fell into contraction territory. Delving deeper into the report, U.S. services companies reported their first drop in new orders since October 2009. The services sector accounts for more than three-quarters of U.S. dollars. gross domestic product . It’s no coincidence that technology shares were at the center of Monday’s selloff. According to portfolio manager Paul Meeks, this wildly overvalued sector could plunge into bear-market territory as the threat of recession grows. In an interview with CNBC , Meeks singled out Apple for being “grossly overvalued.” It along with other trillion-dollar titans could be the hardest to fall as investors begin pricing in the possibility of recession. In Meeks’ view , Apple is the most vulnerable to a selloff because its stock has incorrectly priced in a “5G super cycle.” A tech-sector blowout does just impact the Nasdaq, but the broader market as a whole. As Meeks pointed out, technology shares aren’t just limited to the information technology sector; at least two other S&P 580 sectors (communication services and consumer discretionary) are heavily exposed to technology companies. IT and communication services combined account for roughly $ 19 trillion in market cap. Within consumer discretionary, internet retail is a $ 2 trillion industry. (This article was edited by Last modified February: , (5:) PM UTC Recession Risks on the Rise
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