Nasdaq ends wild day flat after Big Tech reversal, Dow drops 470 points for worst day since February

It was one of the wildest days of the year for the U.S. stock market with technology shares as the battleground. Big Tech took a big hit to start the day on concerns about rising inflation and high valuations. The selling eventually spread to the rest of the market as the day went on.

But in an odd twist, tech shares rebounded in the afternoon as investors went back into names like Amazon and Netflix and left the rest of the market in the red.

The tech-heavy Nasdaq Composite eventually ended the roller-coaster session down less than 0.1% at 13,389.43 after shedding 2.2% at its low of the day. The Dow Jones Industrial Average dropped 473.66 points, or 1.4%, to 34,269.16 for its worst day since February 26. Travelers Companies and Home Depot led the declines in the 30-stock Dow. The S&P 500 slid 0.9% to 4,152.10 as 10 out of 11 sectors registered losses.

Earlier in the volatile session, higher-priced technology shares led the market losses and the selling spilled over to everything from bank stocks to energy and industrials. Then many tech shares recouped most of the decline and closed in the green. Amazon and Netflix both rose more than 1%, while Facebook also reversed 0.2% higher. Apple and Alphabet also cut losses significantly. The growth-focused ARK Innovation ETF gained more than 2%, making back earlier steep losses.

The Cboe Volatility Index, a measure of fear in the markets derived by option prices on the S&P 500, jumped as high as 23.73, levels not seen in two months. The so-called VIX remained stubbornly above 20 for most of last year before dropping to a low below 16 last month. A rising VIX is often accompanied by falling markets.

Tesla shares, the poster boy for growth stocks with lofty valuations and expectations, fell 1.9%, but closed well off lows.

Investors bought the dip in tech shares amid the sharp sell-off this week. The group had briefly fallen out of favor earlier this year as fears of inflation and higher interest rates crept up. Growth-oriented companies, which were the biggest pandemic winners, tend to get hit hard by rising rates as they erode the value of their future earnings.

Some traders said so-called short covering contributed to the intraday comeback in tech. When shares sell off sharply, short-sellers betting against the names have to buy back borrowed securities in order to close out the short position and cash out.

Top investor Stanley Druckenmiller shared concerns on CNBC’s “Squawk Box” Tuesday morning that unnerved investors to start the day.

While Druckenmiller said he was still long stocks somewhat, the hedge fund manager said assets were in a “raging mania” and that the Fed and U.S. government risked endangering the U.S. dollar’s reserve status by injecting too much costly stimulus into an already hot economy.

“I can’t find any period in history where monetary and fiscal policy were this out of step with the economic circumstances, not one,” Druckenmiller said. “If they want to do all this and risk our reserve currency status, risk an asset bubble blowing up, so be it. But I think we ought to at least have a conversation about it.”

The latest headlines, including a labor shortage as well as a jump in Consumer Price Index in March, helped fuel inflation worries.

Job openings soared to a record high in March as employers struggled to find workers to fill those positions, the Labor Department reported Tuesday.

Even as help wanted jumped from February by 597,000, or 8%, to 8.12 million, hires rose just 215,000, or 3.7%, to just over 6 million.

“When valuations remain high, even factoring in yesterday’s and today’s selling, the promise of rock bottom interest rates fades as the market questions the strong job openings report against the availability of labor and the need to boost wages to fill the positions, not to mention concerns that fiscal largesse is keeping workers from moving back into the labor force,” said Quincy Krosby, chief market strategist for Prudential Financial.

Big Tech got clobbered on Monday as investors exited stocks like Apple and Microsoft, dragging the Dow Jones Industrial Average and the S&P 500 off their record highs in the process. Both of those stocks lost at least 2% to start the week. The Nasdaq suffered the worse of the selling and fell 2.5%, finishing the day at its session low on Monday.

— With assistance from Nate Rattner.