The Nasdaq closed lower on Friday though well above its session low as selling eased late in the day after investors dumped heavyweight technology stocks due to concerns about high valuations and a patchy economic recovery.
The major Canadian and U.S. indexes regained some ground in late afternoon though trading was volatile. And the TSX, with a loss of 1.40%, suffered an even bigger decline for the day than Wall Street, with a big drop in oil prices hitting the energy sector.
The S&P/TSX Composite Index closed down 230.88 points at 16,218.01. All major sectors were lower, led by a 3.87% drop in technology stocks. The energy sector lost 1.59%.
Kinaxis led declines, falling 6.58%, although that still left the software solutions company stock up more than 90% year to date. Equinox Gold was close behind, with a drop of 6.18%, after saying there was a temporary suspension at a mining operation in Mexico.
In the plus column was Laurentian Bank of Canada, rising 6.09% after reporting earnings much better than the Street expected. There was also a smattering of recently beaten-down stocks that would benefit from a stronger economy seeing robust gains. Air Canada rose 3.79% and Hudbay Minerals 3.33%.
The TSX is now down 4.93% for the year.
At its lowest point of the day the tech-heavy Nasdaq fell as much as 9.9% from its record high reached on Wednesday and the S&P 500 dipped briefly below its pre-crisis record, reached in February, although both indexes closed above their session lows.
Mega-cap companies Apple Inc, Microsoft Inc , Amazon.com Inc and Facebook Inc also pared losses during the session.
“You had a significant sell-off on Thursday, some follow-through in the morning and then we stabilized. The selling was pretty fierce,” said Michael Antonelli, market strategist at Baird in Milwaukee.
“Corrections like this have been quick and severe lately. We don’t know if its over. The fact we stabilized today could be a good sign,” he said.
While Thursday’s sell-off already reflected investor fears that valuations for the Nasdaq high-flyers had overheated, the worries were exacerbated on Friday by the Financial Times (FT) and others reporting that options trading by Japan’s Softbank had inflated these stocks.
“We’ve started to see signs of weakness in the last few days, notably yesterday. Then you get a headline like the FT story. That really adds fuel to the fire on the downside,” said Jeffrey Kleintop, chief global investment strategist at Charles Schwab in Boston.
Nasdaq had powered the stock market’s stellar recovery from the coronavirus-led crash, climbing as much as 82% from March lows while the benchmark S&P 500 and Dow had surged about 60% from their troughs.
Earlier on Friday, the Labor Department’s closely watched employment report showed the jobless rate improved to 8.4% from 10.2% in July, better than analysts had anticipated. Nonfarm payrolls, however, increased less than expected last month.
Kleintop argued that the jobs news did little to help the progress of stalled talks for a fresh coronavirus stimulus package among sharply divided lawmakers in Washington.
“It wasn’t wonderful enough to get the market excited enough that we don’t need any more stimulus. On the other hand it wasn’t weak enough to bring the two sides in Washington together to extend that stimulus package,” he said.
In Canada, 245,800 jobs were created in August, a weaker pace than in previous months and a sign that hiring plans are shifting into a new phase. The unemployment rate declined to 10.2 per cent from July’s 10.9 per cent. With August’s gains, the labour market has now recouped about 64 per cent of the three million positions that were lost between February and April, when the COVID-19 pandemic forced widespread shutdowns to slow virus transmission.
The Dow Jones Industrial Average fell 159.42 points, or 0.56%, to close at 28,133.31, the S&P 500 lost 28.1 points, or 0.81%, to 3,426.96 and the Nasdaq Composite dropped 144.97 points, or 1.27%, to 11,313.13.
The communication services, consumer discretionary and technology indexes posted Friday’s steepest percentage declines among the 11 major S&P sectors.
Only three S&P sectors ended the day higher including financials which was powered by a 2.2% gain in its bank subsector index.
Fund managers warned Thursday’s declines may be a preview of a rocky two months ahead of the Nov. 3 presidential election as institutional investors return from summer vacations and also refocus on potential economic pitfalls.
Wall Street’s fear gauge, after hitting a more than 11-week high in late morning trading, was lower in afternoon trading.
Oil prices fell more than 3% on Friday and posted their biggest weekly decline since June as fears of a slow economic recovery from the COVID-19 pandemic compounded worries about weak oil demand.
Brent crude, the international benchmark, fell $1.41, or 3.2%, to settle at $42.66 a barrel. U.S. West Texas Intermediate (WTI) fell $1.6, or 3.9%, to settle at $39.77 a barrel.
Brent fell 5.3% from last week, while WTI lost 7.4%.
Prices were pressured by the extended declines in the U.S. equities market and by the report showing U.S. job growth slowed further in August as financial assistance from the government ran out.
Reuters, Globe staff
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