U.S. stocks fell sharply on Wednesday as selling returned to the tech sector amid a plunge in cryptocurrencies.
The Dow Jones Industrial Average fell 351 points, while the S&P 500 dropped 1.3%. The tech-heavy Nasdaq Composite slid 1.7% as Microsoft, Facebook, Alphabet and Apple all slid more than 1%
Sentiment in the tech sector was dented by a drop in cryptocurrencies including bitcoin. The world's largest digital token fell below $40,000 for the first time in 14 weeks and last traded around $36,060 apiece. At one point, the price was down 20% in the last 24 hours and it has fallen more than 30% in one week, according to Coinbase. On Tuesday, China warned financial institutions not to conduct crypto-related business, possibly sparking the sell-off.
Tesla, a big holder of bitcoin, declined 4%. Microstrategy, another company which bought a large amount of bitcoin for its corporate treasury, tanked by 5%. Coinbase, the newly public crypto exchange, fell 3%.
Growth stocks have come under pressure lately with the Nasdaq Composite falling nearly 5% in May as fears of inflation intensified. A sustained pickup in price pressures could unravel the Federal Reserve's accommodative policies, which could hurt technology companies that have relied for years on easy borrowing costs for superior growth.
Cathie Wood's flagship fund Ark Innovation ETF (ARKK) dropped more than 4%, bringing its 2021 losses to more than 15%.
The Fed publishes the minutes from its April meeting later Wednesday afternoon, which could add to angst about inflation. The Fed kept its easy policies that meeting, but acknowledged that inflation could rise in coming months. The central bank maintains that these price pressures will be transitory.
"The major question for markets right now is whether the Fed is right and this increase in inflation is just temporary, because if inflation is not temporary, it could unleash a very painful period for virtually all investors," Tom Essaye, founder of Sevens Report, said in a note.
Helping the sentiment a bit on Wednesday was better-than-expected results from Target. Shares of the major retailer popped by 3.8% after it said sales surged 23% last quarter.
Major stock indexes are coming off back-to-back losses weighed by weakness in the technology sector. Soft housing data on Tuesday partly triggered the broad selling in the previous session.
“Late-day weakness in this sector is becoming commonplace adding to fears it could be headed for a longer and more pronounced period of consolidation than expected,” Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC.
“Investors will be scrutinizing the release of the latest Fed minutes for any subtle hints as to when some tapering actions may be forthcoming,” added Paulsen.