Tesla Share Price Slumps 21% In Worst Ever Day As Tech Stocks Slide Continues

Electric car maker Tesla yesterday saw its valuation plunge by over $100 billion after its share price suffered its worst ever one day drop – 21%. Tesla’s woes were a direct result of markets repricing the stock after the S&P 500 took the surprise decision to overlook the company from inclusion in the benchmark index.

Having met qualifying criteria thanks to four consecutive quarters of profits, S&P 500 membership, which comes with the boost of increased demand for stocks from index-tracking investors, had been priced in by investors. The decision not to bring Tesla into the fold saw the premium on the share price that had taken S&P constituency for granted, immediately drop off.

However, Tesla was not the only tech stock on the slide yesterday as the seeming correction that started last week continued to cool valuations on Monday. Nasdaq, the most tech-focused of Wall Street’s three major benchmark indices and widely considered as the sector’s bellwether, slid 4.1% on Monday. The index is now more than 10% down from its record close early last week but still 20.9% ahead of where it started January.

Tesla’s steep fall in value yesterday also has to be put into context. The carmaker’s share price, which investors regard as more of a technology stock whose value is based on intellectual property, closed yesterday at $330.21 after its 21.1% plummet. But it started 2020 at $86.

Yesterday the other representatives of big tech also slid. Facebook suffered a 4.1% drop in its market value, Amazon 4.4%, Netflix 1.8%, Alphabet 3.7% and Apple a painful 6.7%. The tech slide pulled down broader markets with the size of the biggest companies in the sector meaning its weighting is a heavy one.

The broad-based Dow Jones lost 2.3%. In contrast to both the Nasdaq and S&P 500, the Dow Jones is down over the course of 2020, off its starting level by 3.6%. The S&P 500 also now looks vulnerable to giving up its calendar year gains, now up just 3.1% from the start of January.

The relative buoyancy of U.S. equities markets, despite losses of the past few days, is not reflected in Europe. On the Old Continent, the economic realities of the Covid-10 pandemic appear to be more realistically reflected, even if stock markets also recovered a good portion of the losses accumulated during the March sell off. The FTSE 100 is down 21.4% for the year after inching down by 0.1% yesterday.

Wall Street’s indices have been powered by tech stocks, which drove the Nasdaq to a rally of more than 70% from March’s nadir before the beginning of last week’s drop. Lockdown restrictions accelerating the transition to a digital economy convinced investors that the pandemic’s hurt would not be felt by most of the big tech stocks. If anything, it was felt changing consumer patterns would benefit them.

But with fears growing over the health of the underlying economy heading into autumn and expected job losses, combined with the feeling tech valuations have become detached from fundamentals, investors are getting nervous. This correction could have some way to go.