NASDAQ stock prices slumped on Friday as investors sold-off momentum stocks and turned to value stocks. Momentum stocks are those that investors hold in high regard, and they tend to produce high yields with good movement. Value stocks, on the other hand, are stocks that are priced lower than the fundamentals indicate. Value stocks come with good all-around fundamentals, and increase less dramatically over time. Friday’s market action indicated an overall change in investor interest away from momentum stocks and into value stocks.
On Friday, the NASDAQ sank 2.6 percent as a whole. The downward spiral took the index back to February’s levels. The DOW sank 1 percent last Friday, while the S&P 500 sank 1.25 percent. Common momentum stocks saw high trade volumes as prices sank.
Traders were quick to sell-off many common momentum stocks last Friday, driving prices downward. Netflix, a good performer since 2012, saw twice the average trade volume at 5.00 million. Netflix sank 4.9 percent in share price during the day. Facebook also went through a large sell off, and the trade volume saw double its average at 125.47 million. Facebook sank 4.61 percent in price. Tesla Motors slid down 5.9 percent in share price before the close on Friday, too.
Seth Setrakian of First New York Securities said that much time had passed since he had seen “this kind of carnage.” Seth later said, “A lot of people had been performance chasing,” referring to the momentum stocks that were tumbling down in price during Friday’s sell-offs.
While the NASDAQ slumped during the sell-offs, investors turned away from momentum and looked straight at value stocks. Seth Setrakian has watched this new trend and its culmination during Friday’s sell-offs. He says that investors are taking money out of names like Netflix and Facebook and putting it into old reliable names like Microsoft and Intel. In other words, investors have taken their high gains and reinvested in good fundamentals. Such a move would be made in order to protect profits.
Microsoft currently has a price to earnings ratio of 14.72, which indicates the fair value that Setrakian mentions. Intel’s ratio is 13.88, which is also indicative of good value. Both companies were victims during Friday’s sell-offs, however. Microsoft dropped 2.78 percent, while Intel dropped 0.95 percent. Despite the drops, both companies are known as solid performers. Both have been steadily increasing for almost a year now. Intel also saw a large trade volume on Friday with relatively little drop in share price. Investors looking at Friday’s sell-offs through Setrakian’s perspective will be looking at value companies such as these during the coming weeks.
Another company flagged with value and growth potential is Dunkin Brands Group Inc., known for their Dunkin’ Donuts and Baskin-Robbins stores. They have been a steady performer during the past year, and saw a 30 percent increase in trade volume on Friday. Dunkin Brands Group Inc. sustained about a point of loss in share price during the market selling bonanza, and closed at $48.48. All things considered, Dunkin Brands Group Inc. and Intel sustained a relatively small drop in share price during the sweeping sell-outs.
The biggest hits during Friday’s drop were taken in the healthcare and technology sectors. Healthcare stocks dropped 1.7 percent while technology stocks dropped 2.3 percent. The utilities sector squeaked ahead with a modest 0.31 percent gain overall. Energy came out even with a 0.00 percent overall change. While the NASDAQ slumped during the possible change to value stocks, there were few sectors that investors could have turned to. Investors will undoubtedly be watching for more momentum sell-offs and money transitions during the next week.
Commentary by Luke Sargent