Alphabet posts its second-worst earnings reaction ever
Looking for a unifying theory on what’s ailing equities in a world of vacillating bond yields, iffy earnings and mixed messages from the Federal Reserve? Try valuations.
It’s an oft-told story of the rapidly vanishing stock-market surge. Since earnings and estimates held steady while shares were going up, the whole rally was a function of people ponying up more money for the same slice of profits. Now, with 5% Treasuries coaxing the same money back out, the Nasdaq 100’s forward-looking price-earnings ratio has shrunk from 27 to about 22 in three months.
“Bears are looking for any year-to-date outperformer with a slight earnings problem as a target for selling,” said Mike Bailey, director of research at FBB Capital Partners. “Google fit the bill for this approach. A B+ result in Cloud was enough to send buyers running for the hills.”