Stocks Slide Again as a Promising Week Turns South

The form that speculation has taken may have added to the fragility in the market.

In recent months, investors have bought large amounts of a financial instrument that enables them to bet on stock prices without investing as much money as when buying actual stocks. Analysts say the greater use of these instruments, known as options, helped push tech stocks to new heights.

The Financial Times reported on Friday that SoftBank, a Japanese conglomerate that has a history of making large, risky investments, had been a big buyer of options linked to the rising tech stocks. SoftBank declined to comment to The New York Times.

In fact, many investors have been buying up these options in recent months, said Matthew J. Maley, chief market strategist at Miller Tabak. That causes the financial firms which arrange the options trades to buy the underlying shares to hedge their risks.

As a result tech stocks kept higher, convincing investors that they were a sure bet. “People got too confident,” Mr. Maley said. “It was a kind of can’t-lose situation.”

The question now is whether falling prices could prompt options investors to liquidate their bets, setting off more selling. Since the stocks of Amazon, Alphabet, Microsoft, Apple and Facebook have accounted for a large share of the stock market’s gains this year, a rout in their shares could pull down the market over all.

Stocks can be more at risk of a plunge if investors perceive them to be overvalued. On a valuation yardstick known as the price-to-earning ratio, which compares the price of stocks to companies’ profits, the stock market looks expensive. Combined, the companies in the S&P 500 index are trading at a price-to-earnings ratio that is well above the average of the last 30 years, Mr. Paulsen said.

The appearance of overvaluation has occurred in the past, he noted, when earnings were depressed by a weak economy. And instead of falling into a prolonged slump, stocks rallied. “I think that’s going to happen here,” Mr. Paulsen said.

But other analysts think there is a lot more trouble ahead.

“The market is buckling under the weight of its own egregious complacency, overvaluation and market concentration,” said Mr. Rosenberg, the economist and strategist.

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