High-flying US technology stocks have stumbled over the past week as investors back off from many of the mega-cap companies that have fuelled equity markets since March.

Between the market close on 2 September and end of day trading on 8 September, the tech-heavy Nasdaq index fell 10%, while the S&P 500 index dropped 6.9%.

Some of the most popular stocks fared even worse. Over the same time period, Tesla slumped 26.2%, Apple fell 14.1%, Microsoft was down by 12.5% and Amazon dropped 10.8%.

While these stocks are still trading significantly up on the year, even after the latest retreat, the sharp downward movements will have shaken investor confidence.

Part of this new bout of investor unease has been blamed on Japanese conglomerate Softbank, which has been making high-risk, multibillion-dollar bets on options tied to US technology stocks, according to a Financial Times report. That acted as a key driver for technology stocks to hit record highs this year.

Last week one of Tesla’s biggest shareholders, asset manager Baillie Gifford, cut its stake in the business after it became too dominant in its funds. As a long-standing, high profile supporter of the business, its decision to take some profits may have prompted other investors to call the top of the market rally and starting sell as well.

Stephen Yiu, manager of the Blue Whale Growth (BD6PG78), this week revealed that his fund had taken some profit on Amazon following its strong run this year, citing valuation discipline.

‘Whatever the reason for last week’s slide – action in the derivatives markets, Tesla’s failure to make it into the S&P 500, the Fed’s no-longer-expanding balance sheet, worries about the lingering economic effects of the pandemic or a simple nod to racy-looking valuations, technology and growth investors now have three decisions to make,’ says Russ Mould, investment director at platform business AJ Bell.

He says investors must decide if company fundamentals have changed, if recent share price declines were justified, and finally, ‘whether this is a chance to buy on the dips – yet again – or a call to lock in what could be substantial profits’.

The UK market doesn’t have many large tech stocks, but the select few includes Ocado (OCDO) whose shares fell 7.2% between 2 and 8 September market close, and Sage (SGE) which dropped 4.9% over the same period.

By way of comparison, the FTSE 100 index only declined 0.2% over that time frame as the three quarter of its constituents who earn in overseas currencies benefited from sterling weakness.

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