Tesla, Apple, Amazon Large Stocks Plunge... Sign of Bubble Burst?

Tesla Drops 8.1% to Below $700... Major IT Stocks Fall Over 1%
Nasdaq Falls 3.52%... Experts Warn "Prepare for Sell-Off"

[Asia Economy New York=Correspondents Baek Jong-min and Park Byung-hee] Electric vehicle company Tesla's stock price plunged 8.1% on the 25th (local time). Tesla's stock price had surpassed $900 last month but turned sharply downward this month, falling below $700. As Tesla, which has led the surge in U.S. tech stocks, plummeted, concerns are growing that this may be a precursor to a bubble burst.

On the same day, major information technology (IT) stocks heavily invested in by domestic investors, including Apple, Amazon, Microsoft, Alphabet, Facebook, and Netflix, all fell more than 1%.

Nasdaq's Largest Drop in 4 Months

As large tech stocks plunged, the Nasdaq index also fell sharply. The Nasdaq index closed at 13,119.43, down 3.52% from the previous trading day. This is the largest drop in four months. The Dow Jones Industrial Average and the S&P 500 also fell 1.75% and 2.45%, respectively, marking their largest declines in a month.

Tesla's stock price closed at $682.22, down 24.2% from this year's high of $900.40 recorded last month. With the sharp drop on this day, Tesla erased all its gains for the year and turned down 3.3%. Although Tesla's stock price fell as much as 13% intraday two days ago, reaching $619, the closing price marks the lowest level in two months since the end of last year.

The sharp decline in the U.S. stock market on this day was driven by a surge in U.S. Treasury yields. The rapid rise in yields served as a warning signal of a bubble. When the yields on safe assets like government bonds rise sharply, investment sentiment toward risk assets such as stocks is significantly dampened.

On this day, the U.S. Department of Labor announced that new unemployment claims last week totaled 730,000, a decrease of 110,000 from the previous week. The market interpreted this as a signal that the Federal Reserve (Fed) might accelerate interest rate hikes. Fed officials have emphasized that the labor market remains fragile and that stimulus policies are still necessary. Amid improving employment data, Treasury yields, which had surpassed 1.5%, briefly surged to 1.61% in the afternoon. News that the Treasury Department's recent auction of 7-year bonds was the weakest in the past decade caused yields to spike vertically. The 5-year Treasury yield, which significantly influences benchmark rate changes, rose at the fastest pace since 2009.

U.S. Stock Market Unable to Hide Anxiety

The surge in Treasury yields stirred fears about tapering (the gradual reduction of quantitative easing). Following Fed Chair Jerome Powell, New York Federal Reserve Bank President William Dudley stated that "inflationary pressures will remain subdued for the time being," but the market sided with inflation concerns.

Peter Toz, President of Chase Investment Counsel, said, "By historical standards, current stock prices are expensive," adding, "Investors should prepare for a sell-off." He noted that a 1.5% Treasury yield is comparable to the dividend yield of the S&P 500, reducing the attractiveness of stocks as investments.

Amid growing fears of a sell-off, the lack of clear positive factors is also a source of anxiety. Mike Zigmont, Head of Trading and Research at Harvest Volatility Management, said, "The positive impact of President Joe Biden's economic stimulus package, which drove stock price gains, has already been reflected in stock prices," adding, "Currently, there are no notable positive factors, so future gains are expected to be limited."

However, there are also considerable opinions that the surge in Treasury yields cannot continue for a long time. CNBC reported that the rise in Treasury yields reflects inflation concerns more than inflation itself. The Wall Street Journal explained that the fact that inflation expectations for long-term bonds of 10 years or more are in the low 2% range, compared to short-term bonds, indicates that inflation will not become prolonged or lead to 'superinflation,' which means double-digit inflation.

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This content was produced with the assistance of AI translation services.