Investors’ views on extended markets’ selloff

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LONDON (Reuters) -Asian and European shares extended a global rout on Friday and U.S. stock futures also pointed to a weak opening on Wall Street as investors continued to offload richly valued technology stocks.

A highly anticipated U.S. jobs report on Thursday failed to provide clarity on the near-term path for interest rates, while artificial intelligence darling Nvidia’s earnings couldn’t staunch the selling.

Bitcoin fell to a 7-month low. The MSCI World Equity Index was down 0.5% and on track for a 3.2% weekly drop, its biggest since March.

QUOTES:

GERRY FOWLER, HEAD OF EUROPEAN EQUITY STRATEGY, UBS, LONDON:

“It does seem like yesterday’s sell-off was probably futures-led and not to do with any portfolio rebalancing from a single stock perspective. I think…there is a pretty rapid tightening in the liquidity environment that every now and then we get, this has happened pretty frequently in the past, not least of all last August 2024 and late 2018.

“I think towards the end of the day yesterday – because a lot of this is end-of-day related activity – you get selling on the futures from CTA funds and risk control funds, and in a market that is getting less liquid to year-end, and liquidity is a lot lower anyway, a lot of this was just pulling on a string.”

RORY MCPHERSON, CHIEF INVESTMENT OFFICER, WREN STERLING, LONDON:

“I think it’s a healthy selloff. If you look at the U.S. tech sector, it’s still up 55% from the lows in April, so a digestion period is normal.

“The obvious catalyst for this selloff? Clearly the price of the bitcoin coming down pulls away some of the buyers of leveraged tech stocks. We’ve also had a sense from markets that the Fed is backing away from a December rate cut.

“If rate cuts still come, in December or January, that is still there as a support. We’ve seen a rotation in the markets, so defensive sectors such as healthcare are holding up. The numbers from Nvidia were wonderful but they didn’t answer questions about whether other tech companies can monetize AI.

“Looking at the U.S. stock market, it’s still not oversold so there’s not enough of a pull back to drag people that sold in April.”

RORY DOWIE, PORTFOLIO MANAGER, MARLBOROUGH, LONDON:

“The market hasn’t been particularly forgiving this earnings season. On average companies are being rewarded by less than usual if they beat earnings and similarly getting penalized more if they miss earnings. This comes amidst a backdrop of circa 85% of companies beating estimates in the U.S. – a very strong number.

“The rotation this month feels like a cash flow rotation – higher quality, unloved parts of the market have performed well (healthcare/consumer staples) whilst those more speculative parts of the market have sold off. Other sectors that have sold off have been pockets of industrials exposed to data centre build out.”

JOHANNA HANDTE, CHIEF INVESTMENT OFFICER, BETHMANN BANK, FRANKFURT:

“I would like to draw a comparison with the year 2000, when we experienced the dot-com bubble. The central argument in the current discussion is often the high valuation. At that time, the focus was on big names such as Cisco and Oracle, which had a price-earnings ratio (P/E) of 90. In comparison, Nvidia currently has a P/E ratio of 30.

“I don’t find this valuation worrying as long as profits keep pace and companies are able to increase their profits sustainably. There will certainly be setbacks in this megatrend theme from time to time, but I don’t think we are already at the end of this structural and disruptive megatrend.

“In the reality of the capital market, a 15% price correction is not relevant; this is not reflected in the long-term chart of stock market performance. In the long term, stock markets rise, and these seemingly severe crises are more like minor fluctuations. In this respect, these short-term corrections can occur again and again…I do not see any structural problems at the moment.”

(Reporting by London markets team)