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What's Behind the Nasdaq's Tumultuous Tuesday Tumble?

By Dan Caplinger - May 4, 2021 at 2:53PM

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Keep perspective on what's happening with high-volatility stocks.

The stock market took a hit on Tuesday, and the Nasdaq Composite (^IXIC 0.00%) got dealt a much harsher blow than most other major market benchmarks. As of 2 p.m. EDT, the Nasdaq was down 2.5% compared to losses of between 0.25% and 1% for some broader measures of stock market action Tuesday afternoon.

When you look at the leaders of the Nasdaq, you'll find losses that are even worse than that. Yet it's important not to jump to conclusions about the Nasdaq's swoon. When you put the moves into perspective, it's hard to complain too much about a one-day drop that pales in comparison to all the gains investors have seen over the past year.

Roller-coaster with riders about to go down a drop.

Image source: Getty Images.

Big hits for the biggest Nasdaq stocks

The carnage among mega-cap Nasdaq tech stocks  was wide-ranging:

  1. Apple and NVIDIA were all down more than 4%.
  2. Amazon and Tesla lost more than 3%.
  3. Losses for Microsoft, Alphabet, and Facebook came in between 2% and 3% on the day.

In fact, you had to go more than 20 stocks deep down the list of the Nasdaq-100 Index before finding a winning stock move. Just 10 of the 100 stocks in that index managed to post any gain at all Tuesday afternoon, and the biggest upward move among them was a 1.25% rise for Automatic Data Processing (NASDAQ: ADP).

Market participants attributed the downward move to a number of factors. Treasury Secretary Janet Yellen stated her belief that interest rates might need to move higher from current levels in order to keep inflation in check during an anticipated economic recovery. Lately, that's been the kiss of death for growth-oriented stocks, especially smaller companies that aren't yet profitable and are counting on making money far into the future.

In addition, although earnings performance has been generally strong, stock prices haven't reacted with as much enthusiasm. In many cases, companies have reported solid business performance but have seen their share prices fall. That reflects expectations that pent-up demand will help companies whose businesses suffered short-term hits during the worst of the COVID-19 pandemic.

Don't overreact

Despite the scary declines, it's important to keep some perspective on daily market moves. Even a 2.5% hit to the Nasdaq only takes it back to levels first achieved in January 2021. The index is still up more than 5% on the year -- a noteworthy achievement after such a stellar 2020 for the stock market.

Individual stocks have fared even better. Every single one of the eight stocks named above are up over the past six months, with Tesla leading the way thanks to its 57% rise. Alphabet is still up nearly 40% over that period, and Microsoft, Facebook, and Apple have enjoyed 15% to 20% gains.

Investors need to be prepared for occasional hits to the stock market, especially following periods when stock prices have done extremely well. Even if Nasdaq stocks lose more ground from here in the weeks and months to come, the companies and their underlying businesses have strong prospects that should stand the test of time in the long run.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Dan Caplinger owns shares of Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, Microsoft, NVIDIA, and Tesla. The Motley Fool recommends the following options: long January 2022 $1920.0 calls on Amazon, long March 2023 $120.0 calls on Apple, short January 2022 $1940.0 calls on Amazon, and short March 2023 $130.0 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$883.07 (3.89%) $33.07
Apple Inc. Stock Quote
Apple Inc.
AAPL
$169.24 (2.62%) $4.32
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$289.16 (2.43%) $6.86
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$119.70 (2.63%) $3.07
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$12,493.93 (0.00%) $0.00
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$120.65 (2.68%) $3.15

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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