Make it three bad days to get to three bad weeks in a row. The S&P 500 index (SNPINDEX:^GSPC) closed down 38 points, a 1.1% loss on Friday, after three straight days of declines to finish the week down 0.65%. That makes this the third consecutive week -- every week since the index reached an all-time high in early September -- the S&P 500 has fallen.
That puts the S&P down 7.3% from the all-time high set early in September, with the tech sector led by big declines from giants Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB), down almost 12% from the peak.
Today's sell-off was another relatively broad decline, with all 11 sectors finishing the day lower, and more than 400 of the 504 stocks in the S&P 500 falling. Cruise stocks and real estate were two of the biggest losing groups of stocks today, along with utilities. Norwegian Cruise Line Holdings (NYSE:NCLH) and Carnival (NYSE:CCL) both fell over 5.7%, while healthcare REIT Healthpeak Properties (NYSE:PEAK) was the biggest real estate loser, down over 5.3%. Five of the 11 worst-performing S&P stocks today were REITs or hotel operators.
Analyst: Dot-com bubble level valuations for tech giants
While technology companies have indeed proven some of the most resilient businesses during the coronavirus recession, much of their stock gains in 2020 haven't been a product of earnings growth. They've been a result of investing being willing to steadily pay a higher and higher valuation.
An analyst at Barclay's pointed that out recently, specifically calling out Apple and Facebook, along with fellow mega-cap stocks Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), Netflix (NASDAQ:NFLX), and Microsoft (NASDAQ:MSFT) for valuations that "appear to be pricing in an ideal scenario."
Here's an illustration of what the analyst was describing:
With earnings multiples well above 30 times for the group, investors are paying well above the more recent valuations for all of these giants but Netflix. This is likely part of the reason we've seen the S&P tech sector shed 12% of its value this month, while the stocks above have all fallen even further:
Cruise stocks continue taking on water
Norwegian and Carnival were joined by fellow cruise ship giant Royal Caribbean (NYSE:RCL) in today's sell-off. And while there wasn't anything specific to point at today, beyond the broad market sell-off that saw almost every kind of stock fall, it's a continued slide lower that has seen all three lose 9% or more of their value over the past two weeks:
Investors are getting skittish, and being less trusting in the idea of a quick recovery for the cruise industry before a coronavirus vaccine, and cheap and fast (and accurate) testing, are widely available.
Eventually they'll return to the seas, and it's likely that all three have access to enough capital to get there. What's far less clear is how much more pain, and financial harm that erodes future per-share returns, the companies will have to go through before they can get there.
Safe stocks take it on the chin
Real estate investment trusts and utility companies are two sectors often considered some of the safest for investors looking to avoid losses. Their assets tend to generate stable, reliable cash flows that hold up during economic uncertainty. Yet today, both the S&P utility and real estate sectors fell almost 2%.
Healthcare REIT Healthpeak properties, as described above, had the worst day, while office and retail property REITs Vornado Realty Trust and Kimco Realty both fell over 5%.
In the utility sector, the sell-off was broad, with only one of the 28 utility stocks in the index finishing the day higher.
Will next week break the streak of losses?
Today marks the lowest point for the S&P 500 since the all-time high in the first week of September, down 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 plenty of catalysts that could see a continued sell-off. Tech stocks, along with some other sectors, remain pricey on a historical basis, and it's questionable what the catalysts would be to send stocks higher in the near term, as the economy remains stuck in a lower gear and the coronavirus weighs on continued economic recovery.
The takeaway here isn't that investors should sell stocks; the reality is there are always reasons to sell based on short-term fears or worries. It's more a reminder that volatility and uncertainty are always there in the short term, and stocks should be viewed as great ways to build wealth over years, not weeks or even months.