Wall Street endured another bruising day on Monday, June 12, as a tech selloff that dragged the Nasdaq from its record highs on Friday, June 9, resumed.
The Nasdaq slumped 0.52% but was off its worst losses of the session. The S&P 500 was down 0.10%, the Dow Jones Industrial Average fell 0.17%.
A swift and unexpected selloff in tech surprised markets on Friday. The tech-heavy Nasdaq suffered its worst weekly performance since the week ended Dec. 16. The Nasdaq had hit an intraday record earlier in that session.
The sudden selloff was partially tied to a note from Goldman Sachs that said low volatility in Facebook Inc. (FB - Get Report) , Amazon Inc. (AMZN - Get Report) , Microsoft Corp. (MSFT - Get Report) and Google parent Alphabet Inc. (GOOGL - Get Report) may be blinding investors to risks including regulation and cyclicality. The firm cautioned investors not to think of the sector as a safe haven.
Industry leaders bore some of the worst of the sector's losses on Monday. Apple Inc. (AAPL - Get Report) , Alphabet, Alibaba Group Holding (BABA - Get Report) , Facebook, Cisco Systems Inc. (CSCO - Get Report) and Intel Corp. (INTC - Get Report) were all sharply lower, Netflix Inc. (NFLX - Get Report) entered correction territory, and the Technology Select Sector SPDR ETF (XLK - Get Report) slumped 0.65%.
The FAANG stocks -- Facebook, Apple, Amazon, Netflix, and Alphabet (formerly Google) have significantly contributed to recent gains on Wall Street. Those stocks have accounted for two-fifths of the S&P 500's gains this year, said John Stoltzfus, chief investment strategist at Oppenheimer. That's "reason enough we'd think for some investors to take a little money off the table in the tech space," he wrote in a note.
After a meteoric rise, there are a number of tech stocks vulnerable to a sharp pullback. Bruce Kamich lists 15 stocks to be wary of in this selloff. Get his insights with a free trial subscription to our premium site for investors, Real Money.
Apple -- down 2.4% -- led the Nasdaq lower on Monday after getting hit with another downgrade, its second in a week. Mizuho Securities downgraded its rating to neutral from buy and cut its price target by $10 to $150. Analysts argued that high expectations for the upcoming iPhone 8 have already been priced in.
"We believe enthusiasm around the coming product cycle is fully captured at current levels, with limited upside to estimates from here on out," analysts wrote in a note.
A strong performance from Apple shares was also reason to reconsider upward potential, analysts said. Apple has already risen almost 29% this year, far higher than the 8.6% growth in the S&P 500. The Technology Select Sector SPDR ETF has risen more than 15%.
Last week, analysts at Pacific Crest downgraded their rating on Apple to sector weight and provided a $145 price target. The firm pointed out similar concerns regarding the iPhone 8 and analysts' already-priced-in expectations.
Amazon followed tech stocks lower even after Piper Jaffray reiterated an overweight rating and increased its price target by $150 to $1,200. Analyst Michael Olson says Amazon's retail growth in its second quarter is unlikely to slow down.
A rally in crude oil helped to minimize losses on the S&P 500. Oil moved higher on Monday ahead of monthly reports on the state of domestic and global supplies and demand later in the week. The Organization of Petroleum Exporting Countries will release their report on Tuesday and the International Energy Administration is set for Wednesday.
West Texas Intermediate crude was up 0.6% to $46.08 a barrel on Monday.
The energy sector was one of the best performers on Monday. Major oil producers Exxon Mobil Corp. (XOM - Get Report) , Chevron Corp. (CVX - Get Report) , ConocoPhillips (COP - Get Report) , Halliburton Company (HAL - Get Report) , and Royal Dutch Shell plc (RDS.A - Get Report) climbed, while the Energy Select Sector SPDR ETF (XLE - Get Report) added 0.7%.
Investors were also looking ahead to the Federal Reserve's two-day meeting that begins Tuesday, June 13. Markets expect few surprises there. A June rate hike has been widely expected since Fed commentary in recent weeks suggested there were more hawks than doves. Members have pointed to a tightening job market, the risk of being behind the curve on inflation, and a generally healthy economic recovery.
The Federal Open Market Committee, the monetary policy arm of the central bank, will make an announcement on interest rates on Wednesday afternoon.
Wall Street is incredibly confident in a rate hike -- CME Group fed funds futures have priced in a more than 99% chance of a 25-basis-point increase. Should the Fed raise rates, it will be the second of three expected hikes this year.
"We would think it's unlikely that the Fed would throw in a surprise to the market and not move interest rates," Mark Heppenstall, chief investment officer at Penn Mutual Asset Management, said in a phone call. "I think there would be the potential for 'what do they know that we don't know' type of mindset among investors if they weren't to deliver on their tightening."
The Fed will also release updated economic growth and rate hike forecasts, while Fed Chair Janet Yellen will hold a press conference mid-afternoon Wednesday.
General Electric Co. (GE - Get Report) surged nearly 4% after CEO Jeff Immelt announced his retirement as of Aug. 1. Immelt will continue as chairman until the end of 2017. John Flannery, president and CEO of GE Healthcare, will assume Immelt's chief executive role after his retirement in August and take over as chairman in 2018.
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