Fundamentals Might Rescue Everything But Tech Stocks Right Now

(Bloomberg) -- Tech bulls hoping for strong revenue and profit growth to end the bloodletting in the stocks might have to wait for the rest of the market to find its footing first.

The forward price-to-earnings ratio for the S&P 500 Index is near levels it sank to during February's volatility shock. The same cannot be said for the valuation on the tech-heavy Nasdaq 100, which is still meaningfully above the low it reached Feb. 8. That means the broader equity gauge is a lot closer to a technical support level that could mitigate losses.

Using the forward P/E ratio to try to time the bottom in tech stocks has proved difficult. For the Nasdaq 100, the measure reached as low as 16.3 and as high as 17.7 at the bottom of notable selloffs during the past four years. The S&P 500 Index has found support in a fairly narrow range of 15.2 to 15.8. So while the Nasdaq 100 Index would have to fall about 11 percent to find valuation support on this metric, assuming forward earnings remain static at current levels, the S&P 500 Index would require only a 6 percent discount.

“At this point, Technology is the only cyclical sector that hasn't broken down below its low from early February,” analysts at Bespoke Investment Group wrote in a note to clients.

Other technical indicators are more favorable to Nasdaq 100 members, particularly for the FANG quartet of Facebook Inc., Apple Inc., Netflix Inc. and Google parent Alphabet Inc. The average Relative Strength Index for this group has slipped below 37, its lowest level since February 2016 and less than half of what it ascended to when broad U.S. equity benchmarks last set record closing highs. Recent forays into “oversold” territory -- which occurs when the 14-day RSI slips below 30 -- for any of the segment's constituents have been brief affairs.

To contact the reporter on this story: Luke Kawa in New York at lkawa@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh, Randall Jensen

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