Nasdaq drops nearly 3%, Dow closes more than 300 points lower as tech rolls over

U.S. stocks closed sharply lower on Tuesday, erasing earlier gains, as a decline in the broader tech sector brought the major averages down.

The Nasdaq composite fell 2.9 percent to 7,008.81 as shares of Apple and Amazon declined. The S&P 500 pulled back 1.7 percent 2,612.62, with tech sliding 3.5 percent and posting its worst day since Feb. 8. The Dow Jones industrial average closed 344.89 points lower at 23,857.71 and re-entered correction territory, with Microsoft as the worst-performing stock in the index. Earlier in the session, the Dow rose 243 points, while the S&P 500 and Nasdaq also traded higher.

Facebook shares contributed to tech's losses, as they fell 4.9 percent after Bank of America Merrill Lynch reduced its price target on the stock for the second time in five days. The cut comes as Facebook's fallout from the data scandal continues.

Last week, reports emerged alleging that Cambridge Analytica, an analytics company, had gathered data from 50 million Facebook profiles without users' permission. While Facebook has since come out to apologize and try to rectify the matter, concerns remain over data use.

CNN reported Tuesday that Facebook CEO Mark Zuckerberg will testify in front of Congress on the Cambridge Analytica leak.

"While this will not be a pleasant experience for Zuckerberg and his team going in front of Congress, it is a necessary smart strategic step for Facebook to head to the Beltway as the public fury continues to grow around the Cambridge data leak," Daniel Ives, head of technology research at GBH Insights.

Tech shares were also under pressure after Reuters reported Nvidia is temporarily suspending self-driving tests. The news sent the stock down 7.8 percent. Tesla shares also fell 8.2 percent after the U.S. National Transportation Safety Board announced it would investigate a fatal crash that took place last week.

Twitter fell 12 percent after short-seller Andrew Left said he is betting against the stock. "Everything's changed; everyone is talking about data privacy," Left told CNBC. "They're a lot more vulnerable than Facebook."

Netflix declined more than 6.1 percent. Stocks traded higher earlier in the session, extending sharp gains seen in the previous session as concerns over a trade war faded.

"We're still in an environment that's a bit hesitant, but yesterday was incredibly important," said Michael Hans, CIO at Clarfeld Financial Advisors.

Equities rallied sharply on Monday after the Wall Street Journal reported that U.S. and Chinese officials were working to ease trade tensions between the two countries. The major averages rose more than 2.5 percent, notching their best one-day gains since August 2015.

"We're seeing confidence being restored in the market and that's because of fading trade worries," said Peter Cardillo, chief market economist at First Standard Financial. Some investors "could come back in the market or renew long positions."

International markets also received a boost Tuesday after Wall Street's strong day, with both Asian and European indexes posting gains during their respective sessions.

"The market did what it needed to when it needed to on Monday, as the major indices logged historically strong bounces across the board," said Frank Cappelleri, executive director at Instinet. "This helped prevent large bearish patterns from breaking."

Stocks had been under pressure prior to Monday's rally as investors fretted over the economic implications of a trade war between the U.S. and China.

Last week, President Donald Trump signed an executive memorandum that would inflict tariffs on up to $60 billion in Chinese imports prompting China to retaliate. The Dow briefly dipped into correction territory following the news, while the S&P 500 reached its 200-day moving average, a key technical level.

But J.P. Morgan U.S. equity strategist Dubravko Lakos-Bujas said in a note Tuesday investors should buy after the recent dip.

"The market appears to be overreacting to sequential negative narratives …, we believe strong macro and fundamentals will continue to prevail," Lakos-Bujas wrote. "Most of the selling seen over this period has been largely technical …, and as such represents a buying opportunity for fundamental investors."

Bank of America Merrill Lynch said in a note Monday that its clients bought the dip seen last week. "Big net buys of US single stocks plus small inflows into ETFs led to total net buys of $3.0bn," the note said.

Source: CNBC.