Stocks tumbled for the second day in a row as investors continued to bail from momentum names, including social-media stocks, and take cover in defensive plays. By the end of the session, the Dow Jones Industrial Average (DJINDICES:^DJI) had lost 167 points, or 1%, and the S&P 500 slipped 1.1%. No major news seemed to drive today's sell-off, just general worries that the market, or high-priced stocks in particular, may be overvalued after last year's big jump. Earnings season is set to kick off this week, and analysts are expecting just 1.2% growth in profits from a year ago, adding further concerns. The projection is considerably lower than the 6.5% increase expected at the beginning of the year. The downward revision is due in part to poor winter weather that disrupted business in parts of the country, but may be also be a reflection of sluggish economic growth despite some improvements.
Among stocks grabbing headlines today was Sears Holdings Corp. (NASDAQOTH:SHLDQ), which fell 6.4% after spinning off Lands' End over the weekend. Sears shares were actually down 24% when factoring in the value lost from the separation, but today's slide shows that the spinoff may not be the best way to unlock value for shareholders, as Lands' End shares fell 0.4% during today's session. Lands' End also opened trading at a market value of about $1 billion, much less than the $1.9 billion Sears purchased it for in 2002, a decline that seems reflective of other poor management decisions. As a perk, Sears received $500 million in gross proceeds before the separation because of a cash dividend from Lands' End, but the spinoff strategy may be losing its luster as Sears Hometown and Outlet Stores, a prior spinoff, is down more than 20% from its initial price and the parent company has been losing money for years. As Sears divests its subsidiaries, the core business looks less and less appealing.
Netflix (NASDAQ:NFLX) and Yelp (NYSE:YELP), meanwhile, bucked the momentum stock sell-off, today, gaining early on upgrades from Oppenheimer as analyst Jason Helfstein said the recent sell-off created a buying opportunity in certain stocks. Netflix and Yelp are down 35% and 26% from their 52-week highs, though their fundamentals are unchanged, and Helfstein lifted his rating from "market perform" to"outperform" largely on the valuation argument. Netflix was up as much as 3% and Yelp as much as 4% this morning, but both stocks closed with gains of less than 0.5%. With triple-digit P/E multiples, both stocks are pricey. Investors may want to wait for the momentum sell-off to run its course before grabbing a piece of one of these companies.