US technology stocks endured a rollercoaster ride as Wall Street was hit by intense volatility despite better than expected employment figures in the world’s biggest economy.
American employers added another 1.4m jobs in August as the recovery got under way, but the underlying strength of the nation was not enough to stop markets tumbling.
Later in the afternoon it emerged that Japanese investment titan SoftBank has been making large derivatives bets that may have stoked the recent market rally, which peaked earlier in the week.
US shares dropped for the second day in a row, with the tech-heavy Nasdaq falling as much as 5pc on a repeat session of heavy sell-offs. It closed down 1.3pc, having lost nearly 5pc on Thursday.
Silicon Valley’s tech giants led the declines once again, with Apple falling as much as 7pc near the end of the European trading day. However, the iPhone maker pared losses later on, as stocks staged a dramatic comeback.
The market’s wobbles have been pinned on a shift out of tech stocks by investors who are seeking to balance their portfolios, amid concerns the sector’s run of growth has gone too far.
Edward Moya, senior market analyst at foreign exchange group Oanda, said a lack of action on fiscal stimulus from Washington has added pressure.
“Stay-at-home stock valuations were out of control and while many investors will likely buy every dip, with fading fiscal support, risks remain that we could see this unwind last a little longer,” he said.
SoftBank has been accused of being the “Nasdaq whale” that pumped up the US stock market with massive financial bets.
According to the Financial Times, the Japanese conglomerate has bought billions of dollars’ worth of options linked to its prolific tech investments over the past month in what one anonymous banker described as a “dangerous” gamble.
SoftBank is famous for its high-profile and occasionally troubled bets on risky tech firms such as Uber and WeWork that lose money for years but promise a long-term revolution.
This spring it bought nearly $4bn (£3bn) of shares in tech giants including Amazon, Netflix and Microsoft, and took a new stake in Tesla, helping to drive a remarkable stock market rally.
Charlie McElligott, a strategist at the Japanese investment firm Nomura, said in an analyst note that the enigmatic mega-buyer had played a major role in the recent stock market rally.
He said that the surge in options could cause markets to swing wildly and had forced banks selling options to hedge their positions with other purchases, creating a vicious cycle.
Rett Wallace, chief executive of the market intelligence firm Triton, shrugged at the sell-off, saying: “Why were we at those levels anyway?”
SoftBank did not respond to a request for comment.
Analysts at Capital Economics said there is no reason to think the stumble in shares is linked to any wider turmoil.
“Recent economic data continues to point to a reasonably strong recovery. Overall, this does not look much like the March sell-off, which was triggered by the impending collapse in economic activity,” said economist Jonas Goltermann.
“Although US ‘big tech’ stocks are undoubtedly a bit frothy, having risen by almost 80pc since mid-March, we don’t think this means they are necessarily in a dotcom-style bubble. Unlike in 2000, the largest tech firms today are highly profitable and their valuations, while punchy, don’t look so obviously unsustainable.”
The US added another 1.4m jobs in August as the economic recovery gained strength and added to hopes of a V-shaped return to normality.
More than 10m jobs have been created since May, according to the Bureau of Labour Statistics.Unemployment fell from just over 10pc in July to 8.4pc in August.
It means joblessness is down from a peak of more than 14pc at the height of the pandemic recession in the spring. However, the rate remains more than double the pre-coronavirus level of below 4pc.
The rate of jobs growth slowed on the month, but economists remain confident that workers who were laid off will continue to be hired in the coming months.
“The six million workers still on ‘temporary layoff’ suggest scope for additional large gains later this year if public health circumstances allow. We expect the unemployment rate to continue to decline over the remainder of 2020,” said Jan Hatzius at Goldman Sachs.
Employment surged by 178,000 in leisure and hospitality, as that hard-hit industry reopened. So far 3.6m jobs have been created in the sector in the past four months, though the BLS said it still leaves employment down 2.5m on pre-Covid levels.
“The retail sector has recouped 1.7m of its 2.4m jobs lost in March and April, consistent with the V-shaped recovery in retail sales,” said economist Mickey Levy at Berenberg Bank.
Government hiring took another 344,000 workers in August, as the state takes on temporary census staff. The economy is expected to play a crucial role in the presidential election.