US technology stock sell-off spills over elsewhere

<p>US technology-related stocks took something of a beating towards the end of last week, with the technology-tilted Nasdaq declining around 2.6% on Friday. Companies with […]</p>

US technology-related stocks took something of a beating towards the end of last week, with the technology-tilted Nasdaq declining around 2.6% on Friday.

Companies with valuations which have recently been argued as somewhat lofty – that includes the likes of Facebook, Netflix, Pandora and Amazon – all felt the chill of the sell-off.

So, why the technology sell-off?

Well, several factors have been widely discussed, including weaker-than-expected recent jobs figures from the US. That’s in addition to the fact that investors could be somewhat jittery going into earnings season (commencing this week).

Indeed, expectations are that upcoming earnings are unlikely to be significantly exciting, which means that the arguably frothy valuations sported by some of these companies might well become difficult to justify.

All of this follows the sell-off over recent weeks in US biotechnology stocks, which have also enjoyed sky-rocketing valuations. That sell-off was spurred by news that the steep price tag for Gilead Science’s new hepatitis C drug (called Sovaldi) was being called into question.

Meanwhile, Friday’s carnage has seemingly carried over to stocks elsewhere today (7th April).

In the UK, for instance, technology-related shares are feeling the pressure. That’s including companies such as ASOS (down 6.5% at time of writing), Imagination Technologies (down 4.9%), Ocado (down 6%), and ARM (down 2.6%).

Recently-public companies, and Just Eat, both of which met with strong reception at their market debut, haven’t escaped either.  Just Eat is currently down around 4%, while Boohoo is down 3%.

Certainly, the steep valuation enjoyed by some of these companies has been called into question here previously (and it’s still in question). On Friday, for instance, Just Eat’s high valuation relative to earnings was highlighted.

Nonetheless, this recent hit is unlikely to be long lasting.

Indeed, despite talk of – and perhaps even merit in – investors turning away from growth and towards value stocks, the attraction to growth companies with strong fundamentals is unlikely to have waned just yet, particularly this side of the pond where they aren’t in abundance.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.