The “work-from-home” trade didn’t work on Wednesday, as shares of high-flying technology companies swooned along with all three major U.S. stock indexes.
It was rebuke of a broader eight-month trend, when rising COVID-19 cases often would spur buying in shares of tech giants that could benefit from prolonged periods of remote work.
Instead, the tech-heavy Nasdaq Composite Index
underperformed, closing 3.7% lower on Wednesday, booking its sharpest daily percentage drop since Sept. 8, and putting the benchmark 1.5% in the red for October. The S&P 500 index
ended 3.5% lower, while the Dow Jones Industrial Average
finished down 3.4%.
“Investors are moving out of equities as COVID-19 fears and a tightening presidential race add more uncertainty to an already uncertain market,” said James McDonald, chief executive at Los Angeles-based Hercules Investments.
“Recently, during down market days, some work-from-home stocks rose in value, as a so-called safe-haven play,” he said. “But there aren’t many safe havens when the market is worrying about not just rising COVID-19 cases, but the looming presidential election.”
Google falling the most at roughly 5.5%, according to FactSet data.
But other typical go-to safe-haven assets also sold off or languished Wednesday, despite the sharp rout in stocks. Gold futures
ended at a one-month low as some investors braced for margin calls, while U.S. Treasury yields
Meanwhile, Germany and France on Wednesday unveiled fresh limits on public gatherings and business activities amid another tide of coronavirus cases in Europe, stoking fears that additional restrictions could become necessary in parts of the U.S. this winter, threatening the U.S. economic recovery.
And while mounting COVID-19 infections could stall the U.S. economic recovery, some investors pointed to rising unease about the fast-approaching Nov. 3 election in the U.S. as a more significant catalyst for the recent selloff, even though past elections often registered a less significant market impact than feared.
Brian Levitt, Invesco’s global market strategist, pointed out that equity markets, as represented by the S&P 500 index, returned 10.2% each year from 1957 through the end of the third quarter of 2020.
That marks a “doubling of the broad U.S. equity market every 7.05 years across seven Republican administrations and five Democratic administrations,” he wrote in a market note.
Even so, all three major U.S. stock indexes at midweek were on track for their worst weekly declines since the March 20 pandemic lows, when the S&P 500 index tumbled 15% to end the week, according to Dow Jones Market Data.
So far this week, the Dow was off 6.4% as of Wednesday’s close, the S&P 500 was 5.6% lower and the Nasdaq shed 4.7% over the same stretch.
“I am not that worried,” said Brad McMillan, chief investment officer at Commonwealth Financial Network, adding that investors had driven stocks near all-time highs with the hope that the pandemic was under control and that the economic recovery might approach something near “normal” in 2021.
“Markets should reflect the most likely future path, not the most optimistic, and that is where we are headed,” he said in emailed commentary.
“In that sense, the recent pullback—even if it gets worse—is a good thing.”
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