Stocks Finish Week Lower as S&P 500 Dragged Down by Tech Shares

By Gunjan Banerji and Caitlin Ostroff

Declines in shares of technology companies helped push the S&P 500 to a third consecutive week of losses, capping another tumultuous stretch for the stock market.

Friday's moves continue a recent spell of volatility during which major U.S. stock indexes have quickly retreated after marching upward throughout the summer. Tech heavyweights that powered the market higher this year are now dragging it down. Apple, Google-parent Alphabet and other tech companies continued to falter Friday.

Stocks had jumped to start the week, recouping some of their losses from the prior two weeks -- when the S&P 500 and Nasdaq Composite recorded the worst two-week declines since March. But the gains proved to be short-lived. All three major U.S. indexes notched their third consecutive week of losses.

The S&P 500 has lost 5.4% over the last three weeks, the biggest percentage decline over that time frame since June. The Nasdaq Composite has fallen 7.7% over the last three weeks, the biggest such decline since March.

"We're at an inflection point," said David Malmgren, senior portfolio manager at FBB Capital Partners. "I think there could be a little bit more downside."

The S&P 500 slipped 37.54 points, or 1.1%, to 3319.47 on Friday. The tech-heavy Nasdaq Composite lost 116.99 points, or 1.1%, to 10793.28. The Dow Jones Industrial Average shed 244.56 points, or 0.9%, to 27657.42.

Also adding to the stock swings this week were projections the Federal Reserve released Wednesday. The central bank said that the economic outlook remains highly uncertain and signaled it would keep interest rates near zero for at least three more years.

Some investors were disappointed that the central bank didn't offer more guidance around additional stimulus measures or specifics about its inflation targets.

Now, many are anticipating more volatility in the coming months, particularly around the U.S. election and a potentially rocky earnings season. Investors are already girding for weeks of uncertainty following the election. Meanwhile, analysts expect earnings for the third quarter to drop by 22% from the year prior, the second largest such decline in earnings since 2009, according to FactSet data.

Democrats and Republicans remain at an impasse over another round of coronavirus relief. The breakdown in negotiations has disappointed some investors who expected another relief package would lend more spending power to Americans and boost an economic recovery. Additional support could bolster consumer spending, which powers two-thirds of the U.S. economy.

Data released Friday showed that consumer sentiment in the U.S. increased more than expected in early September, though confidence among Americans remained at depressed levels.

Investors are also watching for progress in Covid-19 vaccine trials and monitoring economic data to assess how much stocks can climb, following a rebound from March lows.

"If you think about it, we've had all the easy gains," said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. "It's going to get incrementally harder for us to keep pushing up that hill."

Still, one of the biggest sources of uncertainty is whether the recent downturn in tech will turn into a prolonged period of underperformance.

The big tech companies have outsize influence on the S&P 500 given their towering market valuations. In one sign of the reversal at play, a version of the S&P 500 that gives every company an equal weighting edged higher 0.7% this past week. The standard index slipped 0.6%.

"I think that's the question the whole world is asking...is this the great rotation from tech and growth to maybe some sort of value," said Peter Giacchi, head of designated market maker floor trading for Citadel Securities.

Shares of Alphabet and Apple dropped 4.3% and 4.6%, respectively, this week. Amazon.com and Facebook shed 5.2% and 5.3%, respectively. Netflix lost 2.5% for the week.

Also hanging in the backdrop Friday was the occurrence of so-called quadruple witching -- when both futures and options linked to individual stocks and stock indexes expire on the same day. A surge in options trading targeted at giant technology stocks by both small and large investors has also been magnifying the market's ups and downs in recent days.

There were some standout winners, too, highlighting some of the unusual market dynamics this year. Sports-betting company DraftKings surged 34% this week to $55.39, a new high, after it said it entered a new deal with ESPN. Data-warehousing company Snowflake had a banner initial public offering. Shares skyrocketed Wednesday, its first day of trading, highlighting investors' desire for growth despite the recent tumble in technology shares. They gained $12.46, or 5.5%, to $240.00 Friday.

Overseas, the pan-continental Stoxx Europe 600 fell 0.7% Friday.

In Asia, China's Shanghai Composite Index led regional gains, with a more than 2% rise by the close of trading, helped by rallies in financial stocks. Foreign investors have added to their holdings of Chinese stocks, helping bolster the yuan, which in recent days has hit its strongest levels against the dollar since May 2019.

Elsewhere, major indexes in Hong Kong, Japan and South Korea advanced less than 0.5%, while the Australian benchmark edged lower.

--Joanne Chiu in Hong Kong contributed to this article.

Write to Gunjan Banerji at [e-mail] and Caitlin Ostroff at [e-mail]