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Tech stocks extend losses

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On Tuesday, major tech companies continued to sell off following Monday’s losses. Julie Hyman, Brian Sozzi, and Myles Udland break down the factors contributing to the price action in big tech.

Video Transcript

MYLES UDLAND: Let's take a look at futures this morning. We are seeing stocks under some pressure. NASDAQ futures now off more than 2%. Dow futures falling in sympathy. We've seen the Dow hold up quite all right amid pressure in the tech sector, but we are seeing selling once again in tech names and bringing down the broader market this morning.

At the center of the action, once again we see Cathie Woods Ark Invest, the Ark Innovation ETF, ARKK the main ETF within the suite of products offered by ARK. Off some 5% in free market trading. ARKK is now down right around 40% from its highs. And you look at some of the biggest components in that index, names like Spotify, Square, Roku, of course, Tesla, all of those names continuing under pressure here as we get started in today's trading session.

Looking over at what's going on with the pipeline story, Colonial Pipeline looking to restore services by the end of the week after that ransomware cyber attack took operations offline over the weekend. The group responsible saying yesterday that they were sorry for the attack. We take a look at gasoline futures right now as folks get ready for the summer driving season, and they are under just a little bit of pressure.

But let's begin with that selloff in the tech sector. We have seen a couple episodes, a couple of bouts let's say, as they like to say in the market world, of tech selling over the last couple of months. The last time that we started to see this group under pressure, we were cooling off from the GameStop saga, the true beginning of the meme market or maybe we could say that late January, early February period was some version of the end of the meme market.

But here we are some three months later, we had the indexes hitting record highs just a couple of weeks ago. And Sozzi, now we come back and we discussed the risk in this market of the economy continuing to reopen, people having other things to do, the growth styles so prominent within this group really falling out of favor among investors. We discussed all these risks, but to see the moves in some of these names, I mean Palantir, we can talk about that stock. Off 10% after its earnings. The pressure is really on here in this market.

BRIAN SOZZI: Yeah, and Myles, before I set out why you're seeing this selloff, I'm just looking at the Yahoo Finance trending ticker page right now, and it is a sea of red from yesterday's close. I mean, you just mentioned Palantir. Tesla's shares, including the premarket move today, down about to 10% in two days, or after that "SNL" appearance for Elon Musk. Virgin Galactic, NIO, the NASDAQ, ARK Innovation, Apple, just really completely slaughtered.

And the bottom line is this. Coming off of that jobs report on Friday, badly missed estimates, the fear is now that inflation is on the rise. You have an economic slowdown. And the Fed will be put in a very tough position. Growth slowdown, inflation potentially rising because of the rise in commodity prices, perhaps they are forced to raise interest rates. Not saying this is happening overnight. This is just how the market is thinking.

And when that happens, Julie, you see these high growth tech stocks where sentiment remains or has remained at least before the selloff, very robust. Valuations are stretched by most measures. You see these types of selloffs here, and I'm looking right now even at the semiconductor index, the VanEck Semiconductor Index fell below the 100 day moving average yesterday, really telling you that the short-term, the sentiment is for tech stocks to continue to be under pressure.

JULIE HYMAN: Yeah, I know we're going to talk more about inflation in just a minute, but it is interesting to me, this narrative here this morning, that inflation is the big concern on investors' minds and tech stocks are selling off. The reopening trade makes more sense sort of in the context of this selloff. But if you're looking at inflation and you're looking at companies that might be most effective, technology's not necessarily the first that spring to mind.

And one would think that they would have on a relative basis, some pricing power. So we'll see how that narrative sort of plays out as time goes on. I do want to focus in on some of these individual tech names that we're talking about. Let's bring up Palantir for a moment, shall we, since Myles mentioned it. That company's overall revenue was up 49%. But the net loss was wider than estimated.

Why? Higher compensation costs, which is really interesting given the trend that we've been seeing about more companies really on the sort of hourly wage side talking about having to pay out higher wages. Here's a company that says its stock-based compensation costs were higher than it expected in the quarter. You're seeing there it looks like the earnings per share on an adjusted basis met estimates, but I was seeing that the net loss is actually a bit wider than estimated.

Also, we got to talk about what the stock has been doing, right? $7.25, if you remember, was the reference price for its direct listing last September. The stock went as high as $39 in January. It's down 53% since then, and that doesn't count the drop that it's seeing this morning. Still not bad, it's still well above that reference price, but still, a drop that is seen.

Virgin Galactic, another example of one of these high flyers. Not in the traditional tech space, obviously in the space space, but that company evaluating the timing of its next flight test, it came out with its numbers also. But it's also really being punished in premarket trading. So this trend that we've seen of some of those high flyers that took a dip then recovered a bit, now taking a dip again. Look at that, Virgin Galactic down 18% in premarket trading, Myles.

MYLES UDLAND: Yeah, I mean, looking at those SPAC names, we always do this exercise. We actually hadn't really done this until recently, because so many of these names were obviously trading at many multiples of where they became public. The $10 reference price. And now when I pull up, this is not an exhaustive list. This is just a quick portfolio I made in Yahoo Finance of names in the SPAC space.

Lordstown, Telemed, Clover Health, all these names are now trading below their $10 reference price. And you look at the names that are still sitting on some of those considerable gains. OK, QuantumScape is in there, but it's DraftKings and it's Utz, it's pretzels and sports gambling. I mean, that is not the future of the world trade that I think the SPAC space has sort of marketed here.

Another way to cut this tech selloff just very quickly, because I know we have a graphic for it, which is the stocks that have levered themselves to crypto. Either they said they're going to accept payment in crypto, they're either investing in it in the balance sheet, those names are under pressure. We see it with Square, we see it obviously with Tesla, and then looking at the coins this morning, under some bit of pressure here, off about 3% across the board there,

Julie, as again, just another version of it. And here we go, seeing these, MicroStrategy, really the famous one, off about 50% from its highs. Riot Blockchain of course, a pioneer in the pivot to crypto space. That stock under some pressure this morning, Julie.

JULIE HYMAN: Yeah, interesting that Coinbase is not participating necessarily in that, well, it was up yesterday. I guess the lower number is what it's doing here this morning, so it is seeing a drop.