The big story from global markets last week was the gathering sell off in tech stocks, especially on Wall Street where the Nasdaq finished in a sea of red ink.
In fact many market reports described Friday’s 3% plus slide on Nasdaq as a ‘rout’ to quote Marketwatch.com for example.
A series of weak sales outlooks from big name techs stocks sent shares in the sector crashing on Friday as investors questioned current valuation levels.
Many stocks that had led Wall Street higher in the past year, drove the Nasdaq lower this week to its lowest level since 2014.
Recent earnings and economic reports, including a weak jobs report, seemed to confirm investors’ fear that the US economy, and corporate spending, are slowing.
Stocks like Facebook, Amazon, Alphabet, Netflix, Apple, LinkedIn, Microsoft and more all lost tens of billions of dollars in value over the week and especially on Friday when the selling reached worrying levels (but as usual there were also buyers taking the view that the sellers were wrong).
Much of the selling was driven by momentum based hedge funds and other investors, which is a sign that the group think on Wall Street has turned negative for a while.
Australia’s glamour Wall Street success tech, Altassian, plunged 15.8% on Friday alone, which wiped all the gains of the previous four days and some and sent the stock to a week’s loss of 1.9%.
The bottom line is that nervy investors have kicked away the last area of support underpinning US markets and from now on tech stocks will be rated for their value and not their future (otherwise why value Apple on a trailing price earnings ratio of just 10 when it has normally traded much higher).
An added complication this week will be the two days of testimony by Fed chair, Janet Yellen before the US Congress later this week.
She will be asked about interest rates and the economy and her views could either crystalise market concerns about the slowing pace of activity, or reassure worried investors.
US investors say the latter is unlikely simply because of the rising level of fear that the economy is slowing (and some believe it could slide into recession this year!). So Ms Yellen would have to rule out another rate rise completely (and that won’t happen) to calm nervy markets.
Leading the way Friday was a weak result from LinkedIn Corp – this week it could be the turn of Twitter to undermine confidence in the sector as a whole. Certainly investors have taken a set against Twitter as it has stumbled in recent months.
Investors ignored the solid January jobs report of 151,000 new jobs and an unemployment rate of 4.9% (the first time the rate has bene under 5% since 2008). The number of jobs created was well under market hopes of 190,000, and some investors saw this as a negative.
But the fact is that Friday’s fall was the escalation of weaknesses in the sector that had been apparent for weeks.
Nasdaq dropped 146.41 points, or 3.3%, to close at 4,363.14. It recorded a weekly slide of 5.4%, the largest in a month.
The Nasdaq Composite was particularly hard-hit by declines in the Facebook Inc. of 5.8%, Apple, down 2.6%, Amazon lost 6.3%, Google parent Alphabet shed 3.6% and Netflix was sold off again, shedding 7.7% in value on Friday night.
Business-analytics company Tableau Software shed half its market value a day after it cut its full-year earnings guidance, while LinkedIn, which shocked Wall Street with a weak revenue forecast, saw its shares plunge 44%. LinkedIn lost $US10 billion in value alone.
Companies that sell cloud-based software, meaning Internet-delivered software bought on a metered basis rather than paid for upfront, were also hammered hard with Salesforce.com shares sliding 13.6% (the biggest one day fall in more than 7 years) and Workday stock lost more than 10%.
Shares of Splunk, a data analytics software maker, plunged 23%, Microsoft dropped 3.5%. Marketwatch said that shares in groups Qlik Technologies , Cornerstone OnDemand, Hortonworks, Teradata dropped between 8% and 17% in the rout.
