LinkedIn (LNKD) and Tableau Software (DATA) are both down nearly 50% today after reporting earnings. The declines for these two stocks has set off a wave of selling in the social media and software space, and in high P/E growth stocks in general.
Below we have broken up the S&P 500 into deciles (10 groups of 50 stocks each) based on P/E ratios. The 50 stocks in the index with the lowest P/E ratios are in decile 1 on the left side of the chart. The 50 stocks with the highest (or no) P/E ratios are in decile 10 on the right side of the chart.
The numbers shown for each decile represent the average one-day percentage change today for its 50 stocks. As shown, the five deciles containing the stocks with the lowest P/E ratios are down an average of 0.7% to 1.1% today. The bottom five deciles that contain stocks with the highest P/E ratios are all down much more. The 50 stocks with the highest P/E ratios in the S&P 500 are averaging a decline of 3.1%.
Investors appear to be much less willing to pay up for growth today than they were yesterday. This looks like a case of “valuations don’t matter…until they do.”