Do it three bad days to get to three bad Weeks in a row. The S&P 500 index (SNPINDEX: ^ SPX) closed down 38 points, a loss of 1.1% on Friday, after three straight days of declines to end the week by 0.65%. This makes it the third week in a row – every week since the index reached a record high in early September – the S&P 500 has fallen.
It lowers S&P by 7.3% from record highs in early September, with the technology sector led by large declines from giants Apple (NASDAQ: AAPL) and Facebook (NASDAQ: FB), down almost 1
Today’s sales were another relatively broad decline, with all 11 sectors ending the day lower and more than 400 of the 504 shares in the S&P 500 falling. Cruise stocks and real estate were two of the biggest loss groups today, along with tools. Norwegian Cruise Line Holdings (NASDAQ: NCLH) and Carnival (NYSE: CCL) both fell over 5.7%, while care REIT Healthpeak Properties (NYSE: PEAK) was the biggest property loser, down over 5.3%. Five of the 11 S&P stocks that were worst today were REITs or hotel operators.
Analyst: Dot-com bubble level ratings for tech giants
While technology companies have indeed proven some of the most resilient companies during the coronavirus economy, much of their stock gains are by 2020 has not been a product of profit growth. They have been a result of investing were willing to pay a higher and higher valuation.
An analyst at Barclays recently pointed this out, specifically calling Apple and Facebook, along with other mega-cap stocks Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Netflix (NASDAQ: NFLX)and Microsoft (NASDAQ: MSFT) for values that “seem to price in an ideal scenario.”
Here is an illustration of what the analyst described:
With profit multiples well over 30 times for the group, investors pay far above the latest valuations for all these giants but Netflix. This is probably part of the reason why we have seen the S&P technology sector throw up 12% of its value this month, while the shares above have fallen even further:
Cruise stocks continue to absorb water
Norwegian and Carnival were joined by other cruise giants Royal Caribbean (NYSE: RCL) in today’s sales. And although there was nothing specific to point to today, beyond the broad market sales that saw almost all types of stocks fall, it is a continued slide lower that has seen all three lose 9% or more of their value over the past two weeks:
Investors are getting dirty and less confident in the idea of a quick recovery for the cruise industry before a coronavirus vaccine, and cheap and fast (and accurate) tests, are widely available.
Eventually, they will return to the sea, and it is likely that all three will have access to enough capital to get there. What is much less clear is how much more pain and financial damage erodes future returns per share, companies must go through before they can get there.
Secure bearings take it on the chin
Real estate investments and utility companies are two sectors that are often considered the safest for investors who want to avoid losses. Their assets tend to generate stable, reliable cash flows that hold up under financial uncertainty. But today, both the S&P sectors and the real estate sector fell by almost 2%.
Healthcare REIT Healthpeak properties, as described above, had the worst day, while office and retail properties REITs Vornado Realty Trust and Kimco Realty both fell above 5%.
In the energy sector, sales were broad, with only one of the 28 utility companies in the index ending the day higher.
Will next week break the loss sequence?
Today, the S&P 500 is the lowest point since a record high in the first week of September, a decrease of 7.3% as a whole. Whether next week marks a return to higher returns remains to be seen, but investors should be aware that there are still many catalysts that could see continued sales. Technical stocks, along with some other sectors, remain expensive on a historical basis, and it is doubtful what the catalysts would be to send stocks higher in the short term, as the economy remains stuck in a lower gear and coronavirus weighs on continued economic recovery.
The takeaway here is not for investors to sell stocks; The reality is that there are always reasons to sell based on short-term fears or worries. It is more a reminder that volatility and uncertainty always exist in the short term, and equities should be seen as a good way to build wealth over years, not weeks or even months.