Charts That Only Went Up Rapidly Redrawn in Volatility Bout

(Bloomberg) -- Stocks that charged higher virtually uninterrupted since June got hammered Thursday, redrawing a swath of charts in a hurry.

The carnage was almost everywhere. The Nasdaq 100 sank more than 5.5% in its worst day since the depths of the pandemic. Apple lost $145 billion in market cap, dropping it back below $2 trillion. Stay-at-home darlings Zoom Video and DocuSign plunged 10%. All 30 Dow Jones Industrial Average components fell and only 40 S&P 500 stocks gained. The VIX fear gauge spiked toward 35.

“Stocks can’t go up 3% a day and expect them to continue to go up everyday,” Keith Gangl, a portfolio manager at Gradient Investments, said in a phone interview. “As painful as today is, it could go down a little more as the market was pretty extended.”

Of course, in 2020, a 4% plunge the S&P 500 hasn’t meant a prolonged drawdown. The 5% rout in mid-June is barely recognizable on charts after the index proceeded to rally another 20%. Still, the sharp reversal makes for some interesting lines. Here is a sampling:

Investors who piled into Apple and Tesla after the pair of tech heavyweights executed stock splits to make their shares more attractive to retail investors saw losses of at least 7%.

“Splits don’t change the economic value of the company, and that’s why the stocks that go up on a split seems a little bit unreasonable,” Gangl said. “The market went up too fast too quickly and we’re seeing a reversal of that.”

The violence of the sell-off showed up in measures of volatility. Cboe’s fear index for the Nasdaq 100 spiked above 40, pushing its ratio to the one that tracks options on the S&P 500, charted above, to the highest since 2004.

The Nasdaq 100 was up more than 39% for the year on Monday, almost five times the S&P 500’s gain.

Chipmakers joined the selloff, weighing on the tech-heavy Invesco QQQ Trust Series, which tracks companies in the Nasdaq 100. Many of its holdings are deemed integral to in-home and remote work activities, but also thrive when the economy is growing, hence their attractiveness all summer. Thursday, the ETF saw its biggest drop in almost six months after a massive runup since the outbreak of coronavirus.

“At some point, valuations are just to the point where buyers don’t want to come in, and then you get a little bit of a selloff and then it can just carry forward,” said Sandy Villere, portfolio manager at Villere Balanced Fund. “It makes perfect sense to get some profit-taking in tech. Things do not go up forever.”

Then there are the stay-at-home darlings. Zoom Video Communications Inc. had found a way to become essential in its own right. It rallied 41% Tuesday after strong earnings, pushing its gain for the year past 500%. Since, it’s down almost 20%. DocuSign Inc., another high-flyer, fell as much as 13% Thursday.

The overall pullback may have spooked the new money that flooded into the market recently, but big fund managers are likely just shaving off some of the growth their investments have accrued thus far.

“I don’t think there are any concerns yet,” Gradient Investments’ Gangl said. And although the market is still quite favorable, he anticipates that “a few more days of this and people will start to get worried.”

©2020 Bloomberg L.P.