The tech stock correction on Wall Street continued on Friday, while the controversy continued over Flash Boys, the Michael Lewis book about high frequency trading on the stockmarket (HFT).
That saw many financial stocks (linked to the markets such as banks and brokerages) lose ground.
But their losses were overshadowed by the continuing sell-off on the tech dominated Nasdaq exchange where profit taking stepped up last week by nervous investors.
That will make for a rough start to the day in Australia and Asia today, with falls expected.
As a result, the Nasdaq Composite Index fell 110.01 points, or 2.6%, to 4,127.73.
That was an eight week closing low for the index and Friday’s losses resulted in a second weekly loss in a row. It was down 0.7%.
It fell 2.8% over the week before, taking the fortnight’s fall to 3.5%.
It lost 2.5% over March, but was up half a per cent for the quarter.
The iShares Nasdaq Biotechnology ETF, a benchmark investment for that sector, fell 4% on Friday.
While some alarmist commentators are claiming the weakness on Nasdaq could be the start of a huge shake out, at the moment that’s just wild conjecture.
What’s happening is that big investors have lost faith in so-called momentum stocks – tech giants such as Google, Facebook especially, Amazon, Tesla Motors and Apple – because they feel they are now too expensive.
Therefore prudently, many investors are taking some of their profits, so the shares are falling because sellers outweigh buyers.
Currently it looks like a correction, especially in biotechs.
Some of the losses on Friday were dramatic with some household names suffering big losses.
Shares in Apple Inc., Nasdaq’s heaviest weighted component, were down 1.3%.
The two classes of Google shares fell by more than 4.6%, while shares in Micron Technologies fell 6%, despite reporting better than expected results the day before – a sure sign of the high level of investor concerns.
Facebook, considered a momentum play, tumbled 4.6%.
It is now in a bear market, the shares having fallen more than 20% from its all-time closing high set on March 10.
Telsa Motors, the hot electric car maker, saw its shares suffer a 5.9% fall and its stock is now down more than 20% as well (and in bear territory).
Pandora Media, the streaming music giant, saw its shares down 4.9%, Microsoft shares fell 2.8% and Amazon shares fell 3.2%.
Netflix fell further into bear territory last week with a fall of 4.9%.
The AMP’s Dr Shane Oliver pointed out in a note at the weekend that the current situation on Nasdaq is "a long way from the tech boom with the PE for Nasdaq at about one third of tech boom levels and the forward PE for the S&P 500 looking reasonable at 15 times compared to a tech boom peak of 24 times”.
Meanwhile the Flash Boys HFT story hurt the shares in some key financials on Friday, which were dragged lower by the general unease across all markets in the US.
Goldman Sachs fell 1.72% and was the fourth biggest loser in the Dow on Friday. Bank of America fell 2.5%, JPMorgan was off 1.4%, and Citigroup fell 1.2%. Morgan Stanley lost 1.9%, but shares in broker E-Trade were down a nasty 7.8%, while Charles Schwab, another big US broker, saw its shares lose 4.8%. That was despite founder Charles Schwab agreeing with much of what Lewis wrote in his book.
As E-Trade shares fell more than 6% on Thursday, its shares are now in a correction phase with a two-day loss of more than 14%.
US analysts say any rule change that restricted payment for order flow (which Ameritrade and E-Trade are claimed to receive) could impact revenue at brokers and other groups.
Shares of TD Ameritrade Holding Corp lost 4.2% on Friday. It’s claimed to have sold its customers orders to bigger market traders.
KCG, a listed HFT company saw its shares fall more than 8% on Friday alone.
Not helping on Friday was confirmation by US Attorney General Eric Holder that the Justice Department is investigating HFT to see if it violates insider trading rules.
