Daily Outlook

The Stock Market Is Crashing as the Tech Bubble Finally Starts to Pop

Thursday is a bad day for U.S. equity markets. Stocks fell sharply after the recent rally hit all-time highs. The tech sector, the market leader since the rebound began in late March, is dragging down the whole stock market. The Dow Jones Industrial Average fell more than 2%, the S&P 500 slipped by more than 3%, and the Nasdaq Composite fell by 5%.

Apple was the top decliner in the Dow, falling more than 6%. The tech giant is on pace for its worst day since March. Other big tech stocks, including Facebook, Amazon, and Microsoft, also plunged sharply. The S&P 500 tech sector was down 5.6% and was on track for its biggest single-day decline since June 11, when it fell 5.8%. The sector was also heading for its first losing session in 11 trading days.

The strong rally in tech stocks has fueled a massive bubble. Most tech stocks are overvalued, so a pause is healthy at this point. Five mega-cap tech stocks make up for more than 20% of the S&P 500, holding up the entire market. The pandemic has created a frenzy for tech stocks, as more people work at home and rely on technologies. As the economy recovers, we might see a shift towards other sectors that will benefit from the recovery, such as travel stocks. The stock market rally is an illusion because it is concentrated into only a few stocks. A rotation to other sectors will result in a more sustainable rally.

The Stock Market Is Crashing as the Tech Bubble Finally Starts to Pop, CCN, Sep 3

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