Market Overview

Technology Stocks Crumble Amid Bubble Perceptions

 

The trading week has only just begun, but already investors are buckling down for what is proving to be a difficult time for technology stocks. The bear market for tech stocks began on Wall Street and rapidly spread to Asia. The fear among traders is that technology stocks are overpriced. This sentiment has spread around the world like a raging inferno. Wall Street was relentless against tech companies as concerns over high valuations gave momentum to massive selloffs. In Japan, the Nikkei 225 dropped some 254 points (1.68%) and closed at 14,808.85.

Investors across Asia are anticipating key releases of economic data regarding any future investment decisions. The Bank of Japan is slated to announce a series of economic policy initiatives regarding future stimulus policies. On Wednesday, 9 April, the minutes from the Federal Reserve Bank policy-setting committee will be scrutinized. In spite of the ongoing uncertainty in the technology sector, the euro gained 0.3% against the dollar ($1.3743), while the dollar dropped 0.1% against the yen (103.12). In the UK, the FTSE 100 index took a downturn to the tune of 1.1%. The CAC (NASDAQ: CAC) dropped 0.8% and the DAX (IND:DAX) tumbled 1.8%.

US Markets Dragged Down by Bearish Sentiment

Friday’s fears spurred a massive technology selloff that continued on Monday the 7th April. The over-inflated valuations of tech stocks had US investors scampering to find security amid widespread selloffs of biotech and technology stocks. The DJIA closed at 16,245.87 (down 1.02%) and the S&P 500 closed at 1,845.04 (a move of 1.08%). The NASDAQ took a big hit and was down 1.16% to 4,079.75.

The rot began as Netflix and Google stocks finally came under the microscope by investors. These stocks had been enjoying surging prices over the course of the 2013 and a bubble was forming. Investors were quick to dump those stocks and the sentiment spread throughout Wall Street tech and biotech stocks. For its part, the NASDAQ reeled with its biggest 1 day loss since February 2014. The issue appears to be one of valuations. But it was not all doom and gloom for the technology sector on Monday in the US.

IBM (IBM) spiked 1.4% while Microsoft (MFST) shed 0.13%. Twitter (TWTR) dropped over 8% last week, but managed to stabilize on Monday with just 1.6% in losses. Both Apple (AAPL) and Amazon (AMZN) dropped 1.6%. Yahoo! took a big hit and shed 3.5%. By contrast, some big gains were recorded by Questor Pharmaceuticals (QCRO) with a whopping 18.7% spike owing to the company being acquired by Mallinckrodt (MNK) for a hefty figure of $5.6 billion.

Much of the ongoing weakness in the markets flies in the face of a stronger than expected US jobs report for March. While the labour market in the US is recovering, valuations for stocks in the technology sector dominated trading. Some economists are of the opinion that the bull market may indeed be heading for a downturn after 5 years of growth. The US unemployment rate remains fixed at 6.7%, while the reports indicate that more workers were added to the payrolls – fuelling uncertainty in the markets. During 2013 the NASDAQ index grew substantially, but its growth has been nipped in the bud. Fears remain about justifying stock valuations at a time where companies like Netflix and Facebook literally doubled in value in one year.

 

Author’s Bio: Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise for the globally renowned spread betting and CFD trading company – Intertrader.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

 

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