Tech Selloff Caps Week of Reversalsby and
Disappointing readings on services, labor raise flags
Technology shares sell off amid earnings, revenue misses
Investors expecting the American economy to jolt equities out of their 2016 funk saw those hopes dashed this week as fresh signs of sluggishness sparked a selloff in technology and consumer shares with the highest valuations.
The Nasdaq 100 Index plunged 6 percent in the week, with declines on Friday sparked by a mixed labor report that sent 90 percent of the gauge’s members lower for the five days. Disappointing results from LinkedIn Corp. to Tableau Software Inc. fed fears that momentum shares are hitting a wall at the same time economic data showed growth slowing in the services and manufacturing industries.
The selloff in U.S. stocks pushed the S&P 500 down by 8 percent in 2016, as investors fled riskier assets amid renewed concern that China’s weakness and a rout in oil are slowing the world’s largest economy. Damage was heaviest in the Nasdaq Composite Index, where losses now stand at 13 percent this year after the gauge outperformed the Standard & Poor’s 500 Index in every year since 2011.
“We are seeing some softening in the economy and until that reverses or there is more central bank accommodation, I think the market is going to continue to be vulnerable,” Russ Koesterich, global chief investment strategist at BlackRock Inc., said by phone. “It’s going to be hard for the market to go back to the old highs in the near future.”
A selloff that has wiped more than $7 trillion from global equities this year resumed after a two-week hiatus, as investors increased bets that the U.S. economy won’t be strong enough for the Federal Reserve to raise interest rates four times this year. Expectations that the central bank will stand pat sent the dollar plunging to its worst week in almost a year and pushed the yield on 10-year Treasury notes to the lowest since April.
The S&P 500 fell 3.1 percent to 1,880.05 in the five days, while the Dow Jones Industrial Average slid 261.33 points, or 1.6 percent, to 16,204.97.
Netflix Inc., which rose 134 percent in 2015, slid 9.9 percent on the week, while Amazon.com Inc. dropped 14.5 percent. Stocks declined in proportion to valuation, with a group of about 100 companies with the highest price-earnings ratios in the Russell 1000 declining more than 4 percent on Friday while the lowest fell 2 percent.
The technology selloff Friday was led by LinkedIn, which plunged 44 percent for its worst day since going public in 2011. Tableau’s earnings miss touched off a rout in data-storage providers. Salesforce.com had its worst day since 2008 and tumbled 14 percent in the week, while Workday Inc. lost 14 percent in the five days.
“The market is starting to beat up a number of companies that had held up well or that were the 2015 momentum stocks. When you have a LinkedIn selloff of 45 percent, it just brings up people’s worst fears,” said David Katz, who oversees about $680 million as chief investment officer at Matrix Asset Advisors Inc. in New York. “Everybody’s trying to get out of a small exit.”
Apple Inc. ended the week as the world’s most valuable company, a title it relinquished on Tuesday to Google parent Alphabet Inc. Shares in Alphabet failed to sustain gains sparked by better-than-expected earnings and dropped 7.6 percent for the week, while the iPhone maker limited losses to 3.4 percent in the five days. Apple’s market capitalization of $521 billion surpassed Google’s by almost $50 billion.
Equities took no consolation from Friday’s jobs report, where wage growth and a falling unemployment rate provided signals that the labor market is tightening even though gains in hiring fell short of expectations. The data came as a slowdown in services industries that make up 90 percent of the economy indicated weakness in manufacturing may be spreading.
“The market might be extrapolating the jobs report into the future as a sign growth is slowing, which therefore doesn’t bode well for consumer discretionary,” Anthony Valeri, an investment strategist at LPL Financial in San Diego, said via phone on Friday. “Lackluster earnings haven’t helped matters much.”
Profits this quarter have declined from a year ago in seven of 10 sectors in the S&P 500, according to data compiled by Bloomberg. Retailing shares weighed on the consumer sector, with the 10 worst performers in the group losing at least 10 percent.
Ralph Lauren Corp. tumbled the most ever after cutting its annual forecast, while Kohl’s Corp. lost 15 percent as slow fourth-quarter sales weighed on earnings. Royal Caribbean Cruises Ltd. tumbled 15 percent, the most since 2011 after forecasting profit below analysts’ estimates.
Materials shares were the best-performing group in the S&P 500 as all companies in the sector that reported earnings beat expectations. The group added 4.8 percent, with Freeport-McMoRan Inc. surging 23 percent.
Financial shares declined 3.7 percent on the week, bringing the group’s loss to 12 percent this year, the worst among the 10 sectors in the S&P 500. Daily drubbings in the group have become commonplace as the sector faces lower interest rates and credit concerns amid volatility in banking shares that is the highest since the financial crisis.
“The economic data has been mixed to weaker, and earnings have continued to be weak,” Peter Cecchini, co-head of equities and chief market strategist at Cantor Fitzgerald, said by phone. “Earnings still would’ve been down without energy and revenue is also horrible so earnings have a lot do with the weakness in equities.”