Extended Tech Sell-Off Likely To Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Tuesday, with stocks likely to extend the pullback seen over the course of the previous session.

Technology stocks are likely to lead the way lower once again, as reflected by the 2 percent nosedive by the tech-heavy Nasdaq 100 futures.

Shares of Tesla (TSLA) are moving sharply lower in pre-market trading after a report from Reuters said the electric car maker has halted plans to buy land to expand its Shanghai plant and make it a global export hub.

Tech giants Apple (AAPL), Facebook (FB) and Alphabet (GOOGL) are also seeing significant pre-market weakness, poised to add to the steep losses posted on Monday.

The weakness among technology stocks may partly reflect concerns about an acceleration in the rate of inflation and potential monetary policy tightening by the Federal Reserve.

The Fed has attributed the increase in inflation to “transitory factors,” although analysts have suggested the central bank will still begin considering tapering its asset purchases in the coming months.

Stocks moved mostly lower over the course of the trading session on Monday, with technology stocks leading the way to the downside. The Dow reached a record intraday high in morning trading but joined the tech-heavy Nasdaq in negative territory as the day progressed.

The major averages all finished the day lower, although the Nasdaq underperformed its counterparts by a wide margin.

The Nasdaq plunged 350.38 points or 2.6 percent to 13,401.86, while the S&P 500 slid 44.17 points or 1 percent to 4,188.43 and the S&P 500 edged down 34.94 points or 0.1 percent to 34,742.82.

The steep drop by the Nasdaq came amid weakness among technology stocks following negative analyst comments about several big-name companies.

Google parent Alphabet (GOOGL) and Facebook (FB) posted notable losses after Citi downgraded both stocks to Neutral from Buy.

Oracle (ORCL) also moved to the downside after Barclays downgraded its rating on the business software giant’s stock to Equal Weight from Overweight.

Goldman Sachs chief U.S. equity strategist David Kostin has also warned about the potential negative impact on the earnings of big-name tech companies if President Joe Biden’s corporate tax plan were fully enacted.

Concerns about the outlook for inflation may also have weighed on the markets amid an increase in commodities prices.

Semiconductor stocks showed a substantial move to the downside on the day, dragging the Philadelphia Semiconductor Index down by 4.7 percent to its lowest closing level in well over a month.

Brooks Automation (BRKS), CMC Materials (CCMP) and Lattice Semiconductor (LSCC) turned in some of the sector’s worst performances.

Significant weakness also emerged among oil service stocks, as reflected by the 3 percent slump by the Philadelphia Oil Service Index. The index reached a two-month intraday high in early trading but pulled back sharply as the day progressed.

The downturn by oil service stocks came after a cybersecurity attack forced the shutdown of the largest fuel pipeline in the U.S.

Computer hardware, software and biotechnology stocks also saw considerable weakness on the day, contributing to the steep drop by the tech-heavy Nasdaq.

Commodity, Currency Markets

Crude oil futures are sliding $0.82 to $64.10 a barrel after inching up $0.02 to $64.92 barrel on Monday. Meanwhile, after rising $6.30 to $1,837.60 an ounce in the previous session, gold futures are edging down $0.60 to $1,837 an ounce.

On the currency front, the U.S. dollar is trading at 108.58 yen compared to the 108.81 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.2163 compared to yesterday’s $1.2129.

Asia

Asian stocks succumbed to selling pressure on Tuesday amid a tech sell-off and growing concerns over inflation. As the economy heats up, it is feared that the Federal Reserve may tighten its monetary policy sooner than expected.

Chinese shares reversed early losses to close higher, with the benchmark Shanghai Composite Index edging up 13.85 points, or 0.4 percent, to 3,441.85. Hong Kong’s Hang Seng Index tumbled 581.85 points, or 2 percent, to 28,013.81.

China’s consumer price inflation rose at a slower-than-expected pace in April, while producer prices grew at the fastest pace in more than three years, driven by higher commodity prices, official data showed today.

Consumer price inflation rose to 0.9 percent in April from 0.4 percent in March, the National Bureau of Statistics reported. Nonetheless, the rate was slightly below economists’ forecast of 1 percent. On a monthly basis, consumer prices dropped 0.3 percent versus an expected fall of 0.2 percent.

Producer price inflation surged to 6.8 percent in April from 4.4 percent in March. This was the highest since October 2017 and well above economists’ forecast of 6.5 percent. Month-on-month, producer prices grew 0.9 percent.

Japanese shares led regional losses as fears of higher inflation prompted investors to dump high-flying tech stocks. The Nikkei 225 Index plummeted 909.75 points, or 3.1 percent, to 28,608.59, while the broader Topix closed 2.4 percent lower at 1,905.92.

Tokyo Electron, Screen Holdings, Advantest and Renesas Electronics gave up 4-6 percent. Heavyweight SoftBank Group lost 6.5 percent.

The average of household spending in Japan was up 6.2 percent year-on-year in Marcy, a government report showed earlier in the day. That beat forecasts for an increase of 1.5 percent following the 6.6 percent drop in February.

Australian markets fell from the record high reached in the previous session as inflation concerns mount. The benchmark S&P/ASX 200 Index dropped 75.80 points, or 1.1 percent, to 7,097 as investors looked forward to the federal budget for direction. The broader All Ordinaries Index ended down 88.20 points, or 1.2 percent, at 7,331.60.

Tech stocks followed their U.S. peers lower, with Afterpay plunging 8.7 percent and Nearmap slumping 7.7 percent. Xero, WiseTech Global and Appen gave up 3-4 percent.

Mining heavyweights BHP and Rio Tinto fell 0.7 percent and 1.8 percent, respectively, while smaller rival Fortescue Metals Group lost 2.8 percent. In the oil & gas sector, Woodside Petroleum and Santos fell about 3 percent.

Seoul stocks slipped from a record closing high after a tech sell-off on Wall Street overnight. The benchmark Kospi slid 39.87 points, or 1.2 percent, to 3,209.43, ending a four-day winning streak. The index soared 1.6 percent to close at a record high on Monday.

Chip giants Samsung Electronics and SK Hynix ended down 2.4 percent and 5.4 percent, respectively while internet giant Naver lost 3.6 percent.

Investors ignored data showing that South Korea’s exports for the first 10 days of May surged 81.2 percent year-on-year.

Europe

European stocks have tumbled on Tuesday as inflation worries return to the fore, with speculation growing that rising inflation and positive data might force the Federal Reserve to wind back monetary policy support sooner than expected.

While the U.K.’s FTSE 100 Index has plunged by 2.7 percent, the German DAX Index is down by 2.5 percent and the French CAC 40 Index is down by 2.3 percent.

Sweden’s Evolution Gaming Group has moved sharply lower after the bookrunner announced the pricing of block trades.

German luxury fashion brand Hugo Boss AG has also fallen. The company said it expects a significant increase in Group sales and EBIT for full year 2021.

Consumer electronics retailer Ceconomy AG has also shown a notable move to the downside after its adjusted EBIT loss widened.

Conglomerate ThyssenKrupp has also come under pressure despite raising its full-year outlook for the second time in three months.

Software firm TeamViewer has also slumped after it announced the establishment of a new software development hub as well as a Mixed Reality (MR) competence centre through acquisitions in Europe.

Capgemini has also dropped. The French IT major announced signing of a five-year contract with Airbus to support the redesign of its global collaborative workplace, both in terms of working methods and tools. Shares of the latter were down more than 3 percent.

Miners Anglo American, Antofagasta and Glencore have also fallen in London after data showed China’s factory-gate prices surged more than expected in April, adding to global inflation concerns.

British Airways-owner IAG has also slumped after announcing a convertible bond offering plan worth 800 million euros.

On the other hand, E-commerce group THG has soared on news it is raising more than $1 billion in equity for future deals.

U.S. Economic Reports

The Labor Department is scheduled to release the results of its Job Openings and Labor Turnover Survey for the month of March at 10 am ET. Economists expect job openings to rise to 7.5 million in March from 7.4 million in February.

At 10:30 am ET, New York Federal Reserve President John Williams is due to speak before virtual a SOFR Symposium: The Final Year (Part II) organized by the Alternative Reference Rates Committee.

Federal Reserve Governor Lael Brainard is scheduled to speak on the economic outlook before a virtual SABEW “The Road to Recovery: What’s Next?” conference at 12 pm ET.

At 1 pm ET, the Treasury Department is due to announce the results of this month’s auction of $58 billion worth of three-year notes.

San Francisco Federal Reserve President Mary Daly is also scheduled to participate in a fireside chat before the virtual Community Bankers of Washington Northwest Conference – Spring 2021 at 1 pm ET.

At 1:15 pm ET, Atlanta Federal Reserve President Raphael Bostic is due to speak on the economic outlook before the virtual Rotary Club of Alexandria.

Philadelphia Federal Reserve President Patrick Harker is scheduled to speak on the economic outlook before a virtual CFA Society Philadelphia event at 2 pm ET.

Stocks In Focus

Shares of Virgin Galactic (SPCE) are moving sharply lower in pre-market trading after the spaceflight company reported a much wider than expected first quarter loss.

Apparel maker Hanesbrands (HBI) is also seeing significant pre-market weakness after reporting better than expected first quarter results but providing disappointing guidance.

On the other hand, shares of Callaway Golf (ELY) are likely to see initial strength after the golf equipment and apparel maker reported first quarter results that exceeded analyst estimates on both the top and bottom lines.

3D printer maker 3D Systems (DDD) is also likely to move to the upside after reporting better than expected first quarter results.