US bull mar­ket runs out of steam

The Star Early Edition - - PRICES -

A CRACK has fi­nally formed in the foun­da­tion of the US bull mar­ket. Now in­vestors must de­cide if any struc­tural dam­age has been done.

This year’s hottest stocks, com­pa­nies from Face­book and Ap­ple to Net­flix and Nvidia, buck­led on Fri­day, spurring losses that sent the Nas­daq 100 to its big­gest rout rel­a­tive to the Dow Jones In­dus­trial Av­er­age since 2008. Ac­counts of what spurred it ranged from bear­ish tweets by a short seller to a cau­tious note from Gold­man Sachs Group.

In its most be­nign in­ter­pre­ta­tion, the sell-off was merely a ro­ta­tion, coun­ter­bal­anced by ral­lies in in­dus­tries such as banks, en­ergy pro­duc­ers and re­tail­ers. But the re­ver­sal was enough to spur soul search­ing among bulls who have watched the mar­ket value of Ap­ple, Al­pha­bet, Mi­crosoft, Ama­zon.com and Face­book in­crease by $500 bil­lion (R6.45 tril­lion) since De­cem­ber.

“We are prob­a­bly go­ing to see ad­di­tional sell­ing pres­sure on some high-mo­men­tum stocks that have spear­headed the rally,” said Chad Mor­gan­lan­der, a money man­ager at Stifel, Ni­co­laus & Co. “Stocks have be­come over­bought.”

Even with the de­cline, the Nas­daq 100 re­mains up 18 per­cent in 2017, more than twice as much as the S&P’s 500, and trad­ing at a sig­nif­i­cant val­u­a­tion pre­mium. The in­dex’s price-earn­ings ra­tio was 26.1 points as of Fri­day’s close, more than four per­cent­age points above the broader gauge. That’s the widest gap in more than a year. One re­cent bull with­held judg­ment on whether the rout fore­told worse pain to come.

Fri­day’s losses were sig­nif­i­cant in the tech space. Even as the Dow eked out an 89-point gain in New York, the Nas­daq 100 slid 2.4 per­cent, trim­ming a de­cline that at one point reached 3.8 per­cent, the most in a year. Within the S&P’s 500, tech shares also trailed the full in­dex by the most since 2008 as in­vestors took profit in an in­dus­try whose gains this year to Thurs­day had al­most tripled.

Per­haps the worst mo­ment for bulls came just be­fore 3pm in New York, when al­ready-weak­ened shares of Ama­zon.com plunged al­most 5 per­cent in a mat­ter of sec­onds, only to quickly re­coup their losses. Less pro­nounced swoons were vis­i­ble around that time in charts of Ap­ple, Net­flix and Face­book.

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