The Dow Jones Industrial Average fell 808 points, or 2.8%, to 28293, interrupting a rally that sent the Dow industrials above 29000 for the first time since February a day earlier.
Apple Inc. lost 8%, a drop mitigated by its August stock split. Still, Apple lost $179.92 billion in market capitalization Thursday, the largest one-day loss for a U.S.-listed company on record. The drop was larger than the individual market capitalizations of 470 of the 500 companies in the S&P 500, according to Dow Jones Market Data.
Technology stocks have been among the leaders in the broad market rebound. Overall, stocks have soared since March despite the worst economic slump in decades and the novel coronavirus’s continued hold even in some countries that had previously showed success in quashing it, confounding investors.
The decline on Thursday indicates the rally may not continue unabated, investors said.
Holly MacDonald, investment chief of New York multi-family office Bessemer Trust, said the selloff represented something of a return to more normal conditions and wasn’t entirely unexpected given the strength of the stock market’s gains in August. She also said she expected a pickup in volatility going into the fall.
“As the market continues to digest the news related to Covid, the vaccine, the election, there are going to be sessions where you don’t see that degree of strength,” Ms. MacDonald said.
David Lefkowitz, head of Americas equities at UBS Global Wealth Management, described the selloff as driven more by market technicals than any fundamental change for the outlook of corporate profits or the economy, noting the yield on the 10-year Treasury was down only slightly Thursday.
Big tech stocks have seen “some of the biggest froth in terms of valuation expansion,” Mr. Lefkowitz said.
“It’s not surprising that we’re seeing the most expensive parts of the market get hit the hardest; it’s the mirror image of what we’ve been witnessing over the last few weeks.”
On the economic front, fresh data showed that, seasonally adjusted, 881,000 Americans applied for unemployment benefits for the first time through the week ended Aug. 29. Unemployment claims have continued to edge lower but remain near historic highs, signaling continued layoffs as the coronavirus hampers the economic recovery.
The uptick in market volatility could be due to a large number of call options, which confer the right to buy shares, on technology stocks such as Apple and Tesla, according to Saxo Bank. Market makers have been forced to take the other side of such trades, buying the underlying stocks to hedge their positions.
U.S. stock options trading has been driven by individual investors, said Peter Garnry, head of equity strategy at Saxo Bank. If shares in a stock fall enough, market makers will unwind their shares, causing a sharp selloff.
Other companies were hit in the selloff, including chip maker Nvidia Corp. , which lost 9.3%. Some companies tied to the reopening of the economy—including cruise lines, airlines and some retailers—recorded gains. Carnival Corp. gained 5.2%, while United Airlines Holdings Inc. and Ralph Lauren Corp. gained 1.4% and 3.6%.
“Over the past few months we’ve had really quite a strong recovery, and that has started to stall,” said Andrew Hunter, senior U.S. economist at Capital Economics.
Federal Reserve official Mary Daly became the latest policy maker to call for renewed fiscal stimulus Wednesday, saying that reduced government spending measures could slow the economic recovery. Economists have worried that the expiration of extra unemployment benefits that kept households afloat could trigger a drop in consumer spending.
Senate Majority Leader Mitch McConnell raised a question Wednesday as to whether lawmakers could reach an agreement on a new spending package in the next few weeks. Investors have been betting on Republicans and Democrats striking a deal later this month to offer additional relief to U.S. consumers and businesses, after talks stalled in August.
Renewed tensions between Beijing and Washington also remain a risk for markets. The Trump administration signaled plans to impose new restrictions on Chinese diplomats in the U.S., citing Beijing’s use of similar measures on American envoys. The Chinese embassy in Washington responded by accusing the U.S. of violating international conventions, characterizing the fresh restrictions as unjustified and urging the country to reconsider.
“The U.S. election is clearly drawing closer, the U.S.-China trade war is not put to bed, so there are huge uncertainties for the market,” said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. “Frankly, we’ve just had an amazing run up and the market does need to pause for breath.”
The government’s efforts regarding a coronavirus vaccine have left some investors concerned that the issue is becoming a campaign weapon and may discourage people from having the shot when it is ready because of safety concerns or political views. The Centers for Disease Control and Prevention urged states to speed up approval for vaccine distribution sites by Nov. 1, just days before the presidential election.
In bond markets, the yield on the 10-year Treasury ticked down to 0.621%, from 0.650% Wednesday. Yields fall when prices rise.
“Central banks have had a massive impact on the financial markets,” said David Zahn, head of European fixed income at Franklin Templeton. “We had that big selloff in March and we’ve seen quite a big rebound.”
In commodities, U.S. crude-oil futures fell for the fifth time in six sessions, sliding 0.3% to $41.37 a barrel—their lowest close in nearly a month. A rebound in fuel demand has petered out in recent weeks with many people still working and attending school remotely, pressuring energy markets.