High-flying tech stocks at forefront of Wall Street's slump

AP

Print Article

Specialist John O'Hara works on the floor of the New York Stock Exchange, Thursday, Oct. 11, 2018. Stocks are slumping for a second straight day as the market endures its most volatile stretch since February. (AP Photo/Richard Drew)

LOS ANGELES (AP) Technology and internet stocks have led the way for much of Wall Street's bull market run, propelling the stocks of big names like Apple, Amazon and Google's parent company sharply higher along the way.

Now those high-flying stocks are at the forefront of a wave of selling as investors fret about the possible impact of a recent surge in interest rates.

Those jitters gave the Nasdaq composite index, which as a high concentration of technology companies, its biggest loss in more than two years Wednesday. It extended its slide Thursday and has fallen 9.6 percent since it set a record high in late August.

Apple, Microsoft, and Netflix have posted steep declines. Amazon and Google-parent Alphabet, respectively the second- and fourth-most valuable U.S. companies, have fallen more than 10 percent from their recent peaks. Facebook, the sixth-largest company, has shed 29 percent since late July.

"The sell-off was perhaps a little overdone," said Lindsey Bell, investment strategist at CFRA. "A lot of it may have been investors just kind of taking profits in some of the high-flyers of the year that also have high valuations."

The yield on the 10-year Treasury jumped from 3.05 percent early last week to more than 3.20 percent Wednesday, a seven-year high. It dipped to 3.15 percent Thursday.

Interest rates tend to follow increases in bond yields, eroding profits for companies, which have to pay higher interest-rate costs to borrow money. They also make bonds more attractive investments relative to stocks.

Technology and internet-based companies are known for their high profit margins, and many have reported explosive growth in recent years, with corresponding gains in their stock prices. That's made them particularly vulnerable to higher interest rates, because it makes the stocks' already high valuations look even more stretched.

Investors have other reasons to worry about the tech sector stocks. Those include the potential impact that the U.S.-China trade dispute may have on big tech companies, which tend to do a lot of business in China.

In addition, the big-name tech stocks have been faring so well for so long that investors have been betting on even bigger things to come from the companies. Those wagers might take longer to pay off, or worse, fizzle completely if a slowing economy or recession undermines their future growth.

Facebook and Google, for instance, might not be able to entice as many new users to their free digital services, and the advertising that generates most of their revenue might shrivel anyway.

For Amazon, it might mean consumers curtail their spending on merchandise in its e-commerce site and decide they really don't need an internet-connected speaker like the Echo, after all. And Netflix might have more difficulty attracting subscribers, or even start seeing more cancellations to its online streaming service if households feel squeezed.

There's another cloud hanging over Netflix's stock, too. The company is scheduled to report its third-quarter results Tuesday. After it missed its target for subscriber growth during the spring, investors may be bailing out of its stock for fear the trend continued during the summer months, when it's traditionally more challenging to get people to sign up for a video service because of vacation schedules and good weather outdoors.

The margin of error for these companies is extremely thin because the dramatic run-up in their stocks has driven a key stock benchmark price-to-earnings ratio to astronomical levels. None more so than Netflix, with investors still paying the equivalent of $147 for every $1 in earnings, even after its stock has tumbled 12 percent during the past week.

Even with the recent sell-off, Netflix's stock is still worth nearly three times more than it was just three years ago and seven times more than it was five years ago.

Long-established technology companies like Apple and Microsoft, which now pay dividends because they aren't growing as quickly as they once did, have also been caught in the downdraft. That's despite Microsoft still making software that powers most of the personal computers in the world and Apple's iPhones and other gadgets still attracting legions of loyal fans willing to pay premium prices for the products.

Apple's popularity shows in its profits. If analysts' estimates prove accurate, Apple earned $13.3 billion from July through September, or about $6 million every hour. The company is scheduled to report its earnings on Oct. 30.

"We're still optimistic going into third-quarter earnings, with regard to technology," Bell said.

___

AP Business Writers Stan Choe in New York and Michael Liedtke in San Francisco contributed to this report.

Print Article

Read More Business

Community helps CCS find new home

October 18, 2018 at 5:00 am | Bonner County Daily Bee SANDPOINT When Community Cancer Services reached out to the community to help them find a new place to call home, the response was incredible. And now, thanks to that support, they have found a new...

Comments

Read More

Idaho mass stabbing suspect facing death penalty

AP

October 18, 2018 at 11:10 am | BOISE, Idaho (AP) Prosecutors in southwestern Idaho say they'll pursue the death penalty against a man accused of killing a 3-year-old child and wounding eight others in a mass stabbing at an Idaho...

Comments

Read More

BC-USDA-Onion and Pots

AP

October 18, 2018 at 11:07 am | IDAHO FALLS Shipping Point Prices as of 18-OCT-2018Provided by: Specialty Crops Market NewsFederal - State Market News Service, USDA.Phone: (208) 525-0166 Fax: (208) 525-5546Prices represent op...

Comments

Read More

Federal court: Salmon must have protection from warm water

AP

October 18, 2018 at 11:07 am | PORTLAND, Ore. (AP) A federal court has ruled that the U.S. Environmental Protection Agency must come up with a plan to protect salmon from warm water temperatures, which can be fatal for the fish ...

Comments

Read More

Contact Us

(208) 263-9534
PO Box 159
Sandpoint, ID 83864

©2018 Bonner County Daily Bee Terms of Use Privacy Policy
X