Stocks tumbled today, led by a major sell-off in momentum stocks, an indication that investors may see the market as overvalued. Investors ignored a strong jobs report and, instead, sent the Dow Jones Industrial Average (DJINDICES:^DJI) down 160 points, or 1%. The S&P 500 dropped 1.3%, and the Nasdaq, as the host of many of the most volatile stocks on the market, plummeted 2.6%.
The market actually opened the day above water as the Department of Labor reported solid employment numbers in its March employment report. The jobs report tends to move markets, as investors see it as the best indicator of the overall direction of the economy. The agency said that 192,000 nonfarm payroll jobs were added last month, essentially in line with estimates at 195,000. Even better, the total number of jobs added in January and February was revised upwards by a total of 37,000, to 144,000 and 197,000, respectively, indicating that the poor winter weather that business complained about did not affect the economy as much as believed. Also, unemployment held at 6.7%, above expectations of 6.6%.
Among stocks falling today was CarMax (NYSE:KMX), finishing down 4.2% after its earnings report came out this morning. The used-car dealer came up short on both top and bottom lines as earnings $0.44 a share, short of estimates at $0.53, and revenue of $3.08 billion missed the consensus at $3.18 billion. As other vehicle sellers have done, CarMax cited poor weather in part for the disappointing results. Despite the poor weather, the car dealer still saw a 12% increase in units sold and a 9% increase in revenue. Separately, the board of directors approved a $1 billion share buyback program, which is equivalent to about 10% of shares outstanding at today's prices.
Moving in the opposite direction was Potbelly (NASDAQ:PBPB), gaining 4.8% on an analyst upgrade. William Blair lifted its rating on the sandwich chain from market perform to outperform as analyst Sharon Zackfia said the company was unlikely to fall further this year after a 30% drop so far in 2014. She also noted a rising percentage of shares sold, creating the potential for a short squeeze, and said the stock is now significantly cheaper than peer Noodles & Company. Like Noodles, Potbelly's high price tag comes from the view that the chain has plenty of room to run with new locations and untapped markets, but sales are only projected to grow 11% this year. Given those modest growth prospects, it seems hard to justify a 2014 P/E of about 50.