The Nasdaq recorded its biggest two-day decline since December, sending broader markets lower on Monday. The recent downgrade of tech giant, Apple by Mizuho Securities sustained the tech selloff that began on Friday. Shares of Facebook, Google parent Alphabet, Amazon, Apple and Microsoft suffered a second day of decline that began on Friday after Goldman Sachs declared that these five companies' recent outperformance was overvalued. Meanwhile, General Electric's shares moved north following news that the company's CEO Jeff Immelt will be replaced by John Flannery.
For a look at the issues currently facing the markets, make sure to read today's Ahead of Wall Street article.
The Dow Jones Industrial Average (DJI) declined 0.2% to close at 21,235.67. The S&P 500 fell 0.1% to close at 2,429.39. The tech-laden Nasdaq Composite Index declined 0.5% to close at 6,175.46. The fear-gauge CBOE Volatility Index (VIX) traded near 11.4 on Monday. Advancers outnumbered declining stocks on the NYSE by 1,582 to 1,187.
Technology Shares Continue to Decline
Technology shares continued to decline for the second successive session on Monday, as investors continued to sell off technology shares. Almost all of the losses on Monday came from drop in shares of large tech stalwarts including FAANG - Facebook FB , Amazon.com AMZN , Apple AAPL , Netflix NFLX and Alphabet GOOGL that have outperformed the broader market in recent months.
Shares of Apple dropped on Sunday after Mizuho Securities downgraded the company from Buy to Neutral. Apple was downgraded by Mizuho Securities on the ground that the best-case scenario for the tech giant has is already built into prevailing prices for the company's shares. As per Mizuho, Apple has limited upside to estimates going forward. Shares of Apple declined 2.5%, following the downgrade. Major technology stalwarts such as Facebook and Microsoft MSFT both declined by 0.8%, while Amazon and Alphabet recorded a decline of 1.4% and 0.9%, respectively. Shares of Netflix declined by 4.2%.
Technology shares also suffered a major setback following the release of a report from Goldman Sachs GS on Friday which issued warnings on valuations of tech giants such as Facebook, Amazon, Apple, Microsoft and Alphabet. Investors appeared to be in a cautious mood about the overvaluation of technology companies following the release of the report.
Goldman Sachs pointed out that the volatility in Facebook, Amazon, Apple, Microsoft and Alphabet is less than not only the S&P 500, but also the utilities and staples sector. As per the report, tech stocks are less volatile, warning investors that they shouldn't expect the tech stocks to continue to rally for long run.
The drop in technology shares had a negative impact on the broader markets. The broader Technology Select Sector SPDR (XLK) fell 0.6%, and emerged as the worst performing sector of S&P 500. The Technology Select Sector broke below its 50-day moving average for the first time since April 18. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here
Energy Shares and Financials Pare Losses
Oil prices increased on signs of decline in inventory and as investors digested the news that Saudi Arabia has decided to limit crude volumes to some Asian nations in next month. The broader Energy Select Sector SPDR (XLE) increased 0.7%, emerging as the best performing sector of S&P 500.
Meanwhile, financials moved north on Monday, as expectations for a June rate hike in the Fed meeting scheduled to occur this week heightened. Banks are the first gainers when central bank raises key interest rates.
As per the CME FedWatch tool, the probability of a rate hike at the Fed's June 13-14 meeting held steady at more than 95.8%. According to a report released by the Treasury Department, budget deficit was at $88 billion for May, increased from $53 billion a year ago.
However, shares of General Electric Company GE rose 3.6% after the company announced that the General Electric's CEO Jeff Immelt will be replaced by John Flannery on August 1.
Stocks that made Headlines
In a bid to drive its bottom line and increase efficiencies, Mississauga, Canada-based entertainment technology company IMAX Corporation IMAX announced that it intends to trim its workforce by approximately 14%. ( Read More )
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