Please ensure Javascript is enabled for purposes of website accessibility

Why Megacap Stocks Netflix, Salesforce, and Adobe All Fell More Than 5% Today

By Rich Smith - Sep 3, 2020 at 3:12PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What should you do when better-than-average stocks fall more than average stocks?

What happened

In case you haven't heard, the bottom fell out of the Nasdaq today. In the final half hour of trading, the tech-heavy index looks likely to close down at least 5% -- and perhaps even lower than that. Indeed, three of the biggest megacap tech stocks are already down more than 5%, with shares of Netflix (NFLX 1.67%) off 5.1%, and both (CRM -0.02%) and Adobe Systems (ADBE 0.28%) falling 5.7%. When you consider that each of these tech giants weighs in at a market capitalization north of $200 billion, that means that the value of each stock has just shrunk by more than $10 billion. Each.

Scariest of all, there appears to be no reason for the sell-off.

Stock arrow climbs up and then goes back down

Image source: Getty Images.

So what

That's right. Before you start worrying that there's something you missed, let me set your mind at ease: No one on Wall Street downgraded Netflix, Salesforce, or Adobe today; analysts didn't so much as tweak a price target. None of the three stocks issued an earnings warning or any other press release containing negative news.

There doesn't even seem to be anything particularly frightening on the macroeconomic front. According to Marketwatch's latest roundup of economic news today, new applications for jobless benefits were down in the last week of August. Labor productivity was up 10.1% in the second quarter, and the key indexes gauging expansion or attraction in the manufacturing and service sectors both show the economy is in modest growth mode.  

Now what

Of course, the fact that stocks are selling off, with no identifiable reason why, may itself be a frightening fact. Investors -- like anyone -- prefer easy explanations for things that are happening, and in today's tech sell-off, there simply isn't any obvious explanation for why things went so far south, so quickly, today.

Rather, the closest thing to a clear answer I can give you is this: Adobe stock costs more than 67 times trailing earnings right now. Netflix shares sell for 88.5 times earnings, and Salesforce -- well, despite (or because of) having just reported a terrific quarter, Salesforce stock is now selling for more than 109 times trailing earnings.

Obviously, none of these valuations qualifies as cheap. My best guess for why megacap tech stocks sold off today, therefore, is that someone suddenly realized that stocks are getting kind of expensive, and decided to take some profits off the table. (With each company's shares up more than 80% over the past year, there were a lot of profits there for the taking.) The inspiration snowballed into a trend, and before you knew it, everyone was selling everything.

When will it end? Possibly as early as tomorrow, once value hunters return to the market to start picking through the rubble. About the only good news in this whole sell-off is that, since there was no particular reason for it starting -- there's also no good reason it cannot end just as abruptly as it began.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Adobe Systems, Netflix, and The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
$245.17 (1.67%) $4.02
Salesforce, Inc. Stock Quote
Salesforce, Inc.
$187.93 (-0.02%) $0.03
Adobe Inc. Stock Quote
Adobe Inc.
$439.03 (0.28%) $1.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.