US technology stock sell-off spills over elsewhere
City Index April 7, 2014 9:51 PM
<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, Boohoo.com 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.