Prominent VC Warns Markets Could Fall 'Quite A Bit More'

After a nice upward move on the day of the Fed rate hike, the market has retreated sharply in the three subsequent sessions. The sell-off isn't quite done yet, according to Redpoint Ventures.

The Fall: Between Wednesday and Monday, the SPDR S&P 500 ETF Trust SPY has lost over 7%. The weakness is starker when we consider the all-time high reached late last year. Since hitting a peak of 473.54, the SPY has pulled back about 16%. 

Future ‘Tense' For Market:  The market could decline "quite a bit" more despite the plunge in software stocks from their recent highs, venture capitalist Tomasz Tunguz said in his weekly newsletter.

Going back to 2017, the most expensive stock was Veeva Systems, Inc. VEEV and it was then trading at 11.7 times forward multiple, he noted.

Cloudflare, Inc. NET currently has the highest valuation at 22.2 times, he noted. If the valuation environment mirrors the situation, Cloudflare could see multiples halve again, he added.

An average company traded at 5.4 times multiple in 2017 compared to 7.93 times currently, Tunguz said.

Related Link: 3 Software Picks Poised For Accelerating Growth In 2022 

Fastest Growers Could Be Worst Hit:  Tunguz said the overall basket of software stocks is at the same multiple as in 2017. Some of these such as ServiceNow, Inc. NOW and Five9, Inc. FIVN have risen, while Wix.com Ltd. WIX, New Relic, Inc. NEWR and 2U, Inc. TWOU have fallen, he added.

"The high flyers have elevated the distribution at the upper end of the market," the author of "Winning with Data" said.

If multiples compress further, the top quartile — the fastest growers —will bear the brunt, he warned.

"The market can keep having a stock and never reach zero," Tunguz said.

The SPY closed Monday's session down 3.20% at $398.17, according to  BenzingaPro data. 

Related Link: Is Nvidia A Software Play? What This Analyst Sees As 'Software-Only Monetization Opportunities'