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Stocks close lower as tech slides; Apple, Alphabet fall

  • Selling pressures returned to the tech sector, pushing the broader market lower.
  • Shares of Facebook, Amazon, Apple and Netflix all closed lower. Snap, meanwhile, closed 4.92 percent lower at $17 a share, its IPO price. Alphabet shares also fell after being downgraded by analysts at Canaccord Genuity.
  • Investors also continued to digest the Federal Reserve's decision to raise interest rates and lay out a plan to unwind its $4.5 trillion balance sheet.

U.S. equities closed lower on Thursday as large-cap technology stocks faced renewed pressure.

The Dow Jones industrial average fell about 15 points, with Goldman Sachs contributing the most losses. The 30-stock index briefly fell more than 100 points earlier in the session.

The S&P 500 dropped 0.2 percent with information technology sliding 0.5 percent; the sector briefly fell more than 1 percent. The Nasdaq composite pulled back about 0.5 percent after falling more than 1 percent earlier on Thursday.

"What's happening here is people are equating FANG to tech more broadly, and that's a mistake," said Michael Arone, chief investment strategist at State Street Global Advisors. "About 74 percent of the tech sector are outperforming the market."

Shares of Facebook, Amazon, Apple and Netflix all closed lower. Snap, meanwhile, closed 4.92 percent lower at $17 a share, its IPO price. Alphabet shares also fell after being downgraded by analysts at Canaccord Genuity.

Technology has been on a tear this year, with the S&P tech sector rising about 18 percent to easily outperform other industries.

In a note to clients Thursday, Jefferies strategist Sean Darby compared the technology stock run we're seeing now to the "melt-up" that occurred in the late-1990s. Darby noted that both periods had declining inflation and low rates, alongside a thriving digital economy. But ultimately that didn't end well.

"After Y2K occurred, the Fed lifted rates which eventually evaporated the cheap financing that had underwritten the technology boom," Darby said.

But earlier this week tech completed its biggest two-day decline since December.

Traders on the floor of the New York Stock Exchange
Getty Images
Traders on the floor of the New York Stock Exchange

In a note Thursday, independent investment strategist James Paulsen said many believe the move lower in tech is an "overdue value adjustment."

"However, rather than necessarily signaling an overvalued sector, we believe the recent pullback in tech stocks may be a reaction to a forthcoming reacceleration in U.S. economic momentum," Paulsen said.

Recent economic data have been disappointing. Last month, the U.S. economy added 138,000 jobs, well below the expected gain of 185,000. Meanwhile, the Commerce Department said Wednesday that retail sales fell 0.3 percent in May, marking the largest one-month decline since January of last year. The sudden drop confounded economists, which had forecast a 0.1 percent gain.

Investors also continued to digest the Federal Reserve's decision to raise interest rates and lay out a plan to unwind its $4.5 trillion balance sheet.

The U.S. central bank hiked rates for a second time this year, as was widely expected, but some investors doubted the Fed's plans.

"From a general perspective, [the Fed announcement] was fairly in line with expectations," said Eric Stein, co-director of global income at Eaton Vance. "That being said, after a weaker-than-expected CPI print, it may have seemed hawkish to some."

On Wednesday, the Labor Department said the consumer price index — a key measure of inflation — fell 0.1 percent in May. The data dragged the benchmark 10-year note yield to its lowest levels in seven months. On Thursday, the yield hovered near 2.16 percent.

Stein added he thinks the Fed will start reducing its balance sheet in September, "which means the next rate hike may not come until December."

There was a slew of economic data released Thursday, including weekly jobless claims, which came in at 237,000.

The Philadelphia Fed business index hit 27.6 in June, while the Empire State manufacturing survey reached 19.8.

"Most of the economic news has surprised to the downside but the Fed is still comfortable with raising rates," said Bruce Bittles, chief investment strategist at Baird. "At the same time, it seems like we've lost some of that leadership from those six-to-seven high-flying stocks."

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The Dow Jones industrial average fell 14.66 points, or 0.07 percent to close at 21,359.90, with Nike leading decliners and General Electric outperforming.

The S&P 500 slipped 5.46 points, or 0.22 percent, to end at 2,432.46, with materials leading seven sectors lower and utilities the top advancer.

The Nasdaq pulled back 29.39 points, or 0.47 percent, to close at 6,165.50.

About nine stocks declined for every five advancers at the New York Stock Exchange, with an exchange volume of 828.52 million and a composite volume of 3.341 billion at the close.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 11.

On tap this week:

Friday

8:30 a.m. Housing starts

8:30 a.m. Business leaders

10:00 a.m. Consumer sentiment

12:45 p.m. Dallas Fed President Rob Kaplan