WALL STREET’S tech sell-off resumed yesterday with biotech firms bearing the brunt as investors pulled their money out of an industry that was booming just two months ago.
The sell-off sent the S&P 500 tumbling 2.1 per cent to 1,833.08 last night, while the Nasdaq composite closed down 3.1 per cent to 4,054.11, its biggest one-day decline since November 2011.
Among the biggest market losers were genome sequencing firm Illumina, which fell 6.9 per cent, Alexion Pharmaceuticals and Gilead Sciences, which both dropped over seven per cent.
The US biotech sector has been buoyed by more than 70 initial public offerings raising over $4bn (£2.4bn) since the start of 2013 – sending the Nasdaq iShares Biotechnology Index (IBB) to a record 275.4 points in February – but yesterday the IBB collapsed 5.6 per cent to 221.89 points.
“Horrible day in biotech. I’m frankly at a loss for an explanation. And it’s my job to at least know why,” said ISI’s healthcare research senior managing director Mark Schoenebaum, who described yesterday’s events as humbling.
The sell-off quickly spread out to wider tech stocks like Facebook, Netflix and Tesla Motors, which all fell more than five per cent.
The decline will stoke fears of a potential tech bubble, with rich valuations attached to so-called momentum stocks – firms valued purely on future growth prospects.
“Momentum names have been driving this market higher. A lot of these names have been trading at stratospheric valuations, and on long-term outlooks, that may or may not materialise. The question is, ‘At what point do they get too expensive?’ Right now, I think they’re looking a little expensive,” said Charles Schwab’s director of active trading Randy Frederick.