By Medha Singh and Devik Jain
(Reuters) – U.S. stocks jumped on Wednesday as investors took advantage of a three-day sell-off to buy into high-flying tech stocks, a day after the Nasdaq confirmed correction territory.
Tesla Inc’s shares jumped 6.5% after shedding about a fifth of their value in the previous session, following its surprise exclusion from the S&P 500.
The top three U.S. public companies by market capitalization – Apple Inc, Microsoft Corp and Amazon.com Inc – rose between 3.5% and 4.5% after bearing the brunt of the pullback.
Other “stay-at-home” winners such as Facebook Inc and Google-parent Alphabet Inc also climbed, a day after their losses pushed the tech-heavy Nasdaq into correction territory, ending 10% below its Sept. 2 closing high.
All major S&P sectors were higher on Wednesday, led by a 3.3% gain in technology stocks.
“I don’t think this is the onset of a major correction for the market because we still do have an economy that is recovering,” said Max Gokhman, capital markets strategist at Pacific Life Fund Advisors.
“But the real issue is that valuation and prices had really run up well past where the economy was, especially within the tech sector and other growth sectors.”
The pullback has partly been driven by worries that sellers of call options would unwind massive amounts of stocks that they bought during the run up in U.S. stocks as hedges.
Media reports said SoftBank Group Inc has made big bets on equity derivatives tied to tech firms, while retail investors paid $40 billion of premium on call options in the past month, data from derivatives clearing organization OCC showed.
In signs of growing unease about the positioning in tech stocks, a measure of demand for protective put options in relation to call options, used to bet on upside, has risen sharply.
Market volatility is expected to increase in the run-up to Nov. 3 U.S. presidential election, with September and October also historically the most choppy two months of the year.
Later this week, the U.S. Senate also aims to vote on a drastically scaled-back Republican coronavirus aid bill, despite opposition from Democrats who are needed for any measure to be enacted into law.
At 11:38 a.m. ET, the Dow Jones Industrial Average was up 509.97 points, or 1.85%, at 28,010.86, the S&P 500 was up 68.31 points, or 2.05%, at 3,400.15. The Nasdaq Composite was up 273.18 points, or 2.52%, at 11,120.87.
Meanwhile, Wall Street’s fear gauge slipped further from near three-month highs.
AstraZeneca Plc could resume trials for its experimental coronavirus vaccine next week, the Financial Times reported, after the British drugmaker paused global trials of its experimental COVID-19 vaccine. The suspension had weighed on Asian and European markets earlier in the day. Tiffany & Co tumbled 9.8% after French luxury goods giant LVMH warned it was set to walk away from its planned $16 billion takeover of the U.S. jeweler.
Lululemon Athletica Inc dropped 8.8% after the yogawear maker forecast a drop in current-quarter adjusted profit.
Advancing issues outnumbered decliners by a 2.38-to-1 ratio on the NYSE and by a 1.95-to-1 ratio on the Nasdaq.
The S&P index recorded one new 52-week highs and two new lows, while the Nasdaq recorded 23 new highs and 11 new lows.
(Reporting by Medha Singh and Devik Jain in Bengaluru; Editing by Sagarika Jaisinghani, Shounak Dasgupta and Sriraj Kalluvila)