What happened
After Tuesday began with many tech stocks performing well, most of them turned to losses later in the day. Edge-computing company Fastly (FSLY -3.67%), telehealth platform provider Teladoc (TDOC -4.64%), and financial technology specialist Block (SQ -4.53%) (formerly Square) are examples of tech companies that all saw their shares slide more than 2% later in the trading day. As of 3:35 p.m. ET, Fastly shares were down 3.5%, Teladoc shares declined just over 2%, and Block shares had fallen about 2.5%.
The three stocks were probably down primarily because of a pullback in tech stocks.
Image source: Getty Images.
So what
The pullback in many tech stocks on Tuesday is evidenced by the tech-heavy Nasdaq Composite's 0.4% decline as of this writing -- even as the Dow rose more than 0.3%.
Tech stocks are probably simply taking a breather after some upbeat trading days recently. Consider that the Nasdaq is up more than 5% over the past five trading days, even when including the index's loss today.
Recent volatility in the Nasdaq comes after the index has underperformed the S&P 500 this year. The S&P has risen more than 27% in 2021, giving it a 5-percentage-point lead over the Nasdaq's 22% gain.
The Nasdaq's recent surge shows that some investors may think many tech stocks are oversold (or underbought, depending on how you look at it). But weakness in the tech-heavy Nasdaq on Tuesday shows that many investors are being cautious about buying these stocks.
Now what
A large portion of the tech stocks that have weighed on the sector are growth tech stocks, or companies with rapidly growing revenue. Fastly, Teladoc, and Block are all good examples. The three growth tech stocks are down 58%, 54%, and 25%, year to date. Benefiting from many organizations' accelerated digital transformations and consumers' adoption of digital solutions during the pandemic, Fastly, Teladoc, and Block and have seen their revenue soar from the levels they were reporting in 2019. But the market has worried that companies like this will see their momentum taper off too quickly.
Looking to 2022, it will be interesting to see if the Nasdaq and growth tech stocks like Fastly, Teladoc, and Block can make a comeback. On a price-to-sales basis, all three companies have significantly cheaper valuations than they did at the beginning of the year.
A pullback in these three companies' stocks today is giving investors more time to think about whether now is a good time to add some more tech to their portfolios and hope that the sector can return to outperformance in 2022.
