[NEW YORK] The willingness of US stock investors to abide price-earnings ratios stretching into three and four digits came under serious pressure Friday as the Nasdaq Composite Index fell to its lowest since October 2014.
The jobs-day tumble in American equities turned into a full-blown selloff in stocks with the highest valuation. The Nasdaq Internet Index sank 5.2 per cent, as Facebook Inc lost 5.8 per cent. Tableau Software Inc tumbled more than 49 per cent after a miss on licensing revenue, setting off a rout in data- analytics firms including Salesforce.com Inc. LinkedIn Corp fell 44 per cent after forecasting a year of slower revenue growth.
The Nasdaq 100 Index lost 3.4 per cent to 4,024.47 at 4 pm in New York, to the lowest since August. The Standard & Poor's 500 Index fell 1.9 per cent to 1,880.02, capping the second-worst week this year, down 3.1 per cent. It was the gauge's worst performance on the day of a U.S. jobs report since June 2012, when it plunged 2.5 per cent. The Dow Jones Industrial Average dropped 211.75 points, or 1.3 per cent, to 16,204.83.
Stocks declined in inverse proportion to valuation, with a group of about 100 companies with the highest price-earnings ratios in the Russell 1000 Index declining more than 4.5 per cent while the lowest gained 1.9 per cent.
"Investors are selling the big tech and large-cap names to stem any further losses - that's what's leading us down today," said Stephen Carl, principal and head equity trader at Williams Capital Group LP. "Economic numbers were mixed, and the market started off modestly down before starting to make new lows as it went along. You've seen profit-taking going into the weekend as well."
A report today showed job growth settled into a more sustainable pace in January and the unemployment rate dropped to an almost eight-year low, signs of a resilient labor market that's causing wage growth to stir. While the increase in payrolls was less than forecast, it largely reflected payback for a seasonal hiring pickup in the final two months of 2015. Hourly earnings rose more than estimated after climbing in the year to December by the most since July 2009.
The S&P 500 Technology Index fell 3.4 per cent, its third decline in four days. Salesforce.com dropped 13 per cent, while Adobe Systems Inc and Red Hat Inc. lost at least 7.9 per cent as Tableau's tumble dragged down other software makers.
LinkedIn reported a loss for the year ended Dec 31. The company said income before items was US$373 million for the 12 months, meaning its market value at Thursday's close was almost 70 times earnings by that measure. Amazon trades at a price- earnings ratio of more than 400. The most expensive company in the Nasdaq Composite is Shutterfly Inc. with a multiple of more than 1,700, Bloomberg data show.
"The market is starting to beat up a number of companies that had held up well or that were the 2015 momentum stocks," said David Katz, who oversees about US$680 million as chief investment officer at Matrix Asset Advisors Inc. in New York.
"When you have a LinkedIn selloff of 45 per cent, it just brings up people's worst fears. Everybody's trying to get out of a small exit." Microsoft Corp dropped for a fifth day, the longest losing streak in five months. Shares are down 9 per cent since a 5.8 per cent rally on Jan 29 following the company's better-than- expected earnings. A gauge of semiconductor stocks fell 3.3 percent, led lower by declines of more than 5.7 per cent in Nvidia Corp., Skyworks Solutions Inc and Broadcom Ltd.
The Nasdaq Internet Index lost 5.2 per cent, the most since 2011, to the lowest in more than a year. Facebook, Amazon and Priceline Group Inc sank more than 5 per cent, with Facebook posting its steepest retreat in 15 months.
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 per cent for the week, while the iPhone maker limited losses to 3.4 per cent in the five days. Apple's market capitalisation of US$521 billion surpassed Google's by almost US$50 billion.
The Chicago Board Options Exchange Volatility Index climbed 7.1 per cent on Friday to 23.38. The measure of market turbulence known as the VIX rose 11 per cent in January, its third straight monthly increase. About 9.4 billion shares traded hands on US exchanges, 21 per cent above the three-month average.
Following the jobs data, the dollar rebounded from a slide that had helped boost commodity prices and optimism for profits at multinational companies, sending shares of raw-material and industrial companies higher in the previous two days. Whipsawing markets and global growth worries have made further rate hikes from the Federal Reserve less likely this year, putting pressure on the US currency.
"The market is trying to sort out what this means for the Fed," said Bruce Bittles, chief investment strategist at Milwaukee-based Robert W Baird, which oversees US$110 billion. "The report, in a vacuum, would suggest a March increase is back on the table. It was nice to see some wage gains for the first time in a while. It becomes a quandary for the Fed board now. This adds to the confusion over when the next rate hike will come." Fed officials in comments this week urged patience in assessing the economy amid tighter financial conditions. Policy makers in December indicated four quarter-point rate increases might be warranted this year. Amid financial market turbulence and tepid data, investors have cut the probability they see of the Fed acting, pricing in just a 10 per cent chance of a March increase and 17 per cent odds in April, up from 15 per cent just before the jobs report.
Investors have been on guard for any signs in economic data or corporate earnings that weakness emanating from China is spilling over. With the U.S. earnings season more than midway through, about 77 per cent of firms that have reported have beat profit estimates, though less than half posted better-than- expected sales. Analysts estimate earnings at index members fell 4.5 per cent in the fourth quarter, better than Jan 15 predictions for a 7 per cent slump.
Eight of the S&P 500's 10 main industries declined today, with technology and consumer discretionary companies falling at least 3.1 per cent. Seven groups slid more than 1 per cent. Phone and utility shares were the only groups to gain. For the companies that tumbled the most today - Hanesbrands Inc, Salesforce.com Inc and Hess Corp - it was the worst day for all three stocks since 2008.
Consumer discretionary companies in the benchmark fell for a fourth straight day to the lowest level in a year. Hanesbrands led the way, dropping 15 per cent after its 2016 sales outlook fell short of analyst expectations.
News Corp, the Wall Street Journal and New York Post publisher controlled by billionaire Rupert Murdoch, slid 9.1 per cent to a record low after its quarterly profit missed estimates as advertising sales declined. Nike Inc. decreased 5 percent, the most since March 2014, and Netflix Inc, the S&P 500's strongest performer last year, sank 7.7 per cent to the lowest since last May.
Restaurants were hammered amid speculation their profits could suffer from higher wage costs. Starbucks Corp. dropped 6.5 per cent, the biggest one-day loss since 2012. Darden Restaurants Inc,, McDonald's Corp and Taco Bell parent Yum! Brands Inc all declined more than 3.5 per cent.
"After all the dust settles, people are going to continue to watch oil and the financial stocks," said Matt Maley, an equity strategist at Miller Tabak & Co LLC in New York. "People are definitely looking at the macro issues right now more than they're looking at earnings."