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Nasdaq Falls 1.9% as Dow Ends Day Near Flat

05/04/2021 | 04:20pm EDT

By Will Horner and Amber Burton

Technology and other growth stocks stumbled Tuesday, coming under pressure after a run that has pushed major indexes to repeated records.

The Nasdaq Composite Index dropped 1.9%, stung by declines in shares of semiconductor companies, along with big tech stocks including Apple, Facebook and Alphabet. The S&P 500 slid 0.7%, and the Dow Jones Industrial Average recovered in afternoon trading to end the day with a gain of less than 0.1%.

The indexes have been hovering close to record levels as investors weigh strong economic data and robust corporate earnings against inflation concerns and rising coronavirus cases in parts of the world. Some money managers say brightening prospects for the economy and for businesses' profits already have been baked into stocks' valuations.

"The market has already priced in a strong recovery and earnings season over-delivered, but it was still not enough to drive indexes much higher, " said Sophie Chardon, cross-asset strategist at Lombard Odier. "The market is now focusing on the next steps, especially on policy. The next step will be to see how the Fed shifts its monetary policy outlook."

The improving economic picture is encouraging some investors to step up bets on companies that stand to benefit the most from the recovery. That is leading to a rally in energy and banking stocks, while technology shares have slowed their gains.

"The rotation trade is back and it will gain momentum over the next few weeks," said Florent Pochon, head of cross-asset strategies at French bank Natixis. "As long as central banks stay dovish and you combine that with the reopening of the economy, then that should be a perfect dynamic for stocks."

Semiconductor and other tech stocks were among the biggest decliners in Tuesday's market. Western Digital, Applied Materials and Nvidia all declined more than 3%, as did Apple. Google parent Alphabet and Facebook dropped about 2%.

Bitcoin also tumbled after more than doubling to start the year. The digital currency dropped 5.5% to $54,660, according to CoinDesk. Dogecoin, the cryptocurrency that started out as a parody, kept climbing, however, rising 35% to above 55 cents. Robinhood, the online trading platform popular with individual investors, said on Twitter that it experienced issues earlier in the session with crypto trading that have since been restored.

In other corporate news, Pfizer rose 0.3%. The pharmaceutical giant reported higher profits partly driven by Covid-19 vaccine sales. CVS Health rose 4.1% after lifting its earnings guidance and reporting higher profits for the quarter.

Under Armour ticked down 3% after agreeing to settle a regulatory claim that it failed to disclose it was pulling forward orders from future quarters.

Earnings reports from T-Mobile US and Lyft are due after markets close.

Demand for U.S. imported goods reached a record high in March, further expanding the trade deficit, the Commerce Department said Tuesday. The foreign-trade gap in goods and services expanded 5.6% from the prior month to a seasonally adjusted $74.4 billion in March.

A second report showed that new orders for manufactured goods rose 1.1% in March after slipping in February.

Because of the positive data, some analysts remain optimistic despite the decline in markets Tuesday.

"You're seeing prices of inputs are holding steady to rising," said Tim Courtney, chief investment officer at Exencial Wealth Advisors. "And you look at the health of the average household and the average consumer -- they're fairly liquid with cash now." He said he views the decline in stocks not as panic, but rather as the markets adjusting after a wave of earnings.

U.S. government bond yields declined for a third consecutive day. The 10-year Treasury yield edged down to 1.587%, from 1.606% on Monday. Bond yields fall when prices rise.

Brent crude, the international oil benchmark, rose about 1.3% to $68.46 a barrel on optimism about recovering demand in the U.S. and Europe.

Overseas, the pan-continental Stoxx Europe 600 retreated 1.4%. In Hong Kong, the Hang Seng Index rose 0.7%. Markets in Japan and mainland China were closed for public holidays.

Write to Will Horner at William.Horner@wsj.com and Amber Burton at Amber.Burton@wsj.com

(END) Dow Jones Newswires

05-04-21 1619ET

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