The company’s results last week were supposed to vindicate those investors who had pushed its shares to a handsome ratio of 310 times expected 2020 earnings on the prospect it would deliver on its long-touted goals to revolutionise travel. It delivered its fourth quarterly profit in a row, meaning it could be considered for inclusion in the S&P 500, helping it to attract new demand from index-tracking funds.
The slide — which was followed by a bounce in early trading on Monday — cuts to the centre of a debate on whether the market is behaving rationally. “There is a lot of exuberance,” said Chris Murphy, co-head of derivatives strategy for Susquehanna Financial, a trading and technology firm. “It’s amazing to go from a global depression to a stock market bubble in three months.”
The price-to-earnings ratio — a common measure of valuation — of tech groups in the benchmark S&P 500 U.S. stocks index now sits at the highest level in more than a decade. The rise has in large part been spurred by stimulus from the Federal Reserve, which through bond-buying programmes and deep interest-rate cuts has prompted investors to shift out of haven sovereign debt and into riskier securities, including stocks.