The stock markets in the United States plummeted today as investors resumed a selloff on technology stocks due to concerns on their very high valuations.
Yesterday, Prem Watsa, chairman and CEO of Fairfax Financial Holdings Ltd (TSE:FFH) warned of another dot-com bubble. He said investors who have stockholdings in technology stocks such as Facebook Inc (NASDAQ:FB), Netflix, Inc. (NASDAQ:NFLX), and Twitter Inc (NYSE:TWTR) will end up hurting because the prices of the equities are unsustainable.
The U.S. Federal Reserve is treading carefully with raising rates amid the widespread economic, macro and geopolitical uncertainties sweeping around the world. The Fed raised its target level as high as 20% in the early 1980s to deal with runaway inflation, but we're a far cry from that today — a time when inflation threatens Read More
Watsa said, “There’s nothing underlying the value of these companies” as he refers to a chart showing the price-to- earnings ratio (P/E Ratio) of the three tech companies. He added, “This is going to end in tears because it always has. Someday the music is going to stop and all these companies are going to come down quite dramatically. The last time this happened was in the dot-com era.”
Today, the Nasdaq Composite Index recorded the highest decline since 2011. The index dropped 3.10%. The Dow Jones Industrial Average fell 1.62% while the S&P 500 went down by 2.09%.
Chad Morganlander, a portfolio manager at Stifel Nicolaus & Co told Bloomberg, “There’s still a continual rotation out of the high-flying momentum stocks of 2013 into more value-driven opportunities.” He forecasted that the market situation will continue in the coming weeks as investors look for consistency in earnings. He added, “You have concerns about high valuations and flat revenue growth, which is a perfect cocktail for a sector rotation out of growth and into value.”
The recently released minutes of the meeting of the Federal Reserve eased concerns regarding its policy on raising interest rate. The minutes showed that policy makers agreed on an open-ended approach wherein short-term rates will remain unusually low for a certain period even after the inflation and employment situation almost returned to a normal level since the economy is not yet totally healthy.
Data from the Department of Labor showed that the number of people who applied for unemployment benefits last week dropped to its lowest level. The number of seasonally adjusted initial claims were 300,000 for the week ending April 5, which is almost close to the 297,000 initial claims recorded in May 12, 2007.
- Dow Jones Industrial Average (DJIA)- 16,170.22 (-1.62%)
- S&P 500- 1,833.08 (-2.09 %)
- NASDAQ- 4,054.11 (-3.10%)
- Russell 2000- 1,127.69 (-1.79%)
- EURO STOXX 50 Price EUR- 3,152.86 (-0.94%)
- FTSE 100 Index- 6,641.97 (+0.10%)
- Deutsche Borse AG German Stock Index DAX- 9,454.54 (-0.55%)
Asia Pacific Markets
- Nikkei 225- 14,300.12(0.00%)
- Hong Kong Hang Seng Index- 23,186.96 (+1.51%)
- Shanghai Shenzhen CSI 300 Index- 2,273.76 (+1.57%)
Stocks in Focus
The stock price of eBay Inc (NASDAQ:EBAY) declined more than 3% to $54.07 per share after activist investor Carl Icahn agreed to settle his proxy fight with the company. Icahn agreed to drop his proposal to spin off PayPal and appoint two nominees to the board of directors of the company. On the other hand, eBay agreed to appoint David Dorman as an independent director.
The shares of Rite Aid Corporation (NYSE:RAD) increased more than 8% to $6.94 per share after the company said sales for the full year will be in the range of $26 billion to $26.5 billion, higher than the $25.78 billion consensus estimate of analysts based on data compiled by Bloomberg. The drug store chain operator also posted solid fourth quarter financial results. Its adjusted earnings were $0.10 per share on $6.6 billion revenue compared with the $0.04 adjusted earnings per share on $6.54 billion revenue estimated by analysts.
Bed Bath & Beyond Inc. (NASDAQ:BBBY) declined more than 6% to $63.72 per share after forecasting that its profit for the first quarter will be lower than expected. The retailer posted Q4 earnings of $1.60 per share on $3.2 billion revenue. For the first quarter, the company expects to deliver $0.92 to $0.96 earnings per share, lower than the $1.02 earnings per share consensus estimate.