US technology stocks were under pressure early on Monday, leaving the sector that has led Wall Street’s gains this year poised for another day of losses after Friday’s abrupt rout wiped $140bn in market value.
The Nasdaq index, which is home to most of the world’s largest technology companies, dropped 1.1 per cent to 6,144 in early trading in New York on Monday. That follows a 2.4 per cent fall on Friday.
In early trading, Apple led the declines with a 3.5 per cent drop to $143.8; Facebook 1.2 per cent to $147.61, and Alphabet, Google’s parent company, 2.2 per cent to $951.62.
Market strategists have for some time pointed to potentially stretched valuations for some of America’s biggest tech names, which have enjoyed a blistering rally this year. Until Friday the S&P 500 tech sector was up 21.9 per cent for 2017, compared with 8.7 per cent for the broader benchmark.
Peter Kenny, a senior market strategist at Global Markets Advisory group, said he expected “more air to be let out of this trade in coming weeks”. He added that tech remained “expensive” on a valuation basis when compared with other sectors.
Tech shares were on Friday priced at 19 times earnings over the next 12 months, from about 17 times in June 2016, according to data from S&P Global Market Intelligence.
Investors have raced into tech, which is thought to provide vigorous revenue expansion even amid a lacklustre economic climate, as expectations that a fiscal stimulus plan from Donald Trump’s administration will galvanise the US economy have faded.
European and Asian tech shares also stumbled on Monday, as questions over how much further the sector’s rally on Wall Street. The Stoxx Europe 600 Technology index, the benchmark for the region, fell almost 3 per cent to 422.33 in early trading on Monday. Meanwhile, the tech sector on the Japanese bourse in Tokyo closed down more than 1 per cent.
In Europe AMS, an Austrian supplier of censors to Apple, was the biggest decliner on the region’s technology index, falling 8.3 per cent to 62.40 Swiss francs. STMicroelectronics, a Swiss chipmaker, was the second steepest faller with a decline of 7.7 per cent.
In Asia Tencent, the Chinese social network with the equal-biggest weighting in Hong Kong’s Hang Seng index, dropped 1.2 per cent.
Concerns that US stocks are becoming more vulnerable to a correction as optimism over the Donald Trump-induced bump in US economic growth fades has already prompted investors to pour money into European equities.
The appeal of European equities has been sharpened after centrist reformer Emmanuel Macron won the French presidential election in May. However, with the benchmark Europe Stoxx 600 having climbed 7 per cent this year, some equity strategists are expecting the region’s rally to pause.
“Equities have successfully defied correction calls so far this year, delivering the best returns of the main asset classes,” analysts at JPMorgan Chase noted of European equities. “We think risk-reward is starting to worsen.”