Tech selloff returns overnight on Wall Street with the Nasdaq dropping 3.1% for its worst day since November 2011 amid ongoing concerns over stretched valuations in the sector. The S&P500 meanwhile lost 2.1%; stock markets in Asia suffered sharp losses too with the Japanese Nikkei 225 falling to a six-month low -- that's put press on European equities. The FTSE100 is down 42 points and the EuroStoxx50 index drops 14 points.
US tech shares stabilised on Wednesday this week after three-consecutive days of losses after investors panic sold on growing worries about ballooning valuations for the likes of Facebook [P/E of 94x], Amazon [P/E of 574x] and Netflix [P/E of 160x] -- all still trading on astronomically high valuations due to the lower interest rate environment and stimulus by central banks offering easy access to capital to overzealous growth hungry investors.
That led to a wave of tech IPOs like Facebook and Twitter, pushed by investment banks and brokers who booked big IPO fees. That all change now; investor sentiment around the tech sector is turning cautious as the Fed withdraws stimulus and looks to raise rates as early as next year. That's led to big money coming out of tech stocks and in favour of other sectors such as telecoms and utilities -- expect this trend to continue in the near-term.
With earnings season in the US underway, tech company earnings will be under intense scrutiny with investors likely to dump their tech stocks on even the faintest sign of bad news out of a company. US futures are currently trading higher however, rebounding after previous session weakness which indicates a firmer open on Wall Street later with earnings from JPMorgan and Wells Fargo set to be in key focus -- expect a bit of a rebound for tech stocks but volatility is likely to stick around in the sector.
So briefly touching on other market drivers; China's inflation figures were poor, showing a drop in prices which reaffirm the markets' fears about a protracted slowdown in the country. Geopolitical tensions flaring up again after Russia's president Putin warned the country's gas supplied to Europe could be disrupted if Russia is forced to punish Ukraine by cutting off flow due unpaid bills -- this will alarm the West further and euro zone policymakers given that the region depends heavily on Russian energy. In the euro zone, German inflation moderated in March with CPI down to 0.9% from 1% - in line with estimates but again reaffirming the deflationary pressures in the euro zone.
Other than JPMorgan and Wells Fargo, market participants are looking out for US PPI and University of Michigan confidence figures.
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Ishaq Siddiqi
Market Strategist
