By Akane Otani, Michael Wursthorn and Ben Eisen
Investors stampeded out of the biggest names in the technology
industry Monday, the latest sign that scrutiny from lawmakers and
regulators, backlash from consumers, and flagging share performance
is threatening to undermine their dominance in the stock
market.
Monday's selling extended a streak of rough trading for the
technology sector, which after leading the stock market higher for
much of the past year has tumbled as negative news surrounding
several industry giants has snowballed since mid-March.
The losses spilled over into other sectors Monday, sending all
11 sectors of the S&P 500 lower and 28 of the 30 components in
the Dow Jones Industrial Average down for the day. The S&P 500
ended 2.2% lower, while the blue-chip index fell 1.9% and the
tech-heavy Nasdaq Composite lost 2.7%.
All together, the so-called FAANG stocks -- Facebook Inc., Apple
Inc., Amazon, Netflix Inc. and Google parent Alphabet Inc. -- have
lost roughly $397 billion in market capitalization since March 12,
before Facebook revealed a third-party firm with ties to the Trump
administration had improperly kept its users' data for years.
Selling in stalwart technology names has raised fears among
investors that cracks could finally be appearing in what had been
one of the most enduring trades in the last year of the bull market
-- similar to what happened at the height of the dot-com bubble in
2000, although many argue that today's industry giants look like
they are on steadier footing.
"Whenever you think there's some relief in sight, we get some
political noise that comes out and it spooks the entire technology
sector," said Mohit Bajaj, director of ETF trading solutions at
brokerage WallachBeth Capital.
Amazon shed 5.2% on Monday as President Donald Trump took to
Twitter to blast the company's business practices. Tesla Inc.
slipped 5.1% following rebukes from the National Transportation
Safety Board over the disclosures it made about a fatal crash
involving one of its vehicles, while Facebook, whose handling of
users' data has come under increasing scrutiny in recent weeks,
fell 2.8%.
"Facebook was a golden child, the one everyone on the Street
knows," said Paul Karrlsson-Willis, a managing director and head of
global equity sales and trading at Cabrera Capital. But the
mishandling of user data has sparked concerns among many investors,
from Wall Street to mom and pop, that other companies, such as
Google or Amazon, could be suffering from similar, if not bigger,
issues, he said.
As the rout in the FAANG stocks intensified, shares of companies
ranging from chip manufacturers to electronic-payment providers to
biotechnology firms tumbled too, highlighting the indiscriminate
selling spreading across the technology sector. Semiconductor giant
Advanced Micro Devices Inc. fell 5.2%, while videogame firm
Activision Blizzard Inc. lost 3.5% and networking-gear maker Cisco
Systems Inc. shed 4.4%.
Even companies that seemed safe from political crossfires were
caught in Monday's selling, Mr. Bajaj noted.
At the same time, traders said a series of technical factors
helped reinforce that momentum in the market is waning. The S&P
500 closed below its 200-day moving average for the first time
since June 2016, shortly after the British vote to leave the
European Union. That signals there could be more market turbulence
in store, especially after the index resisted closing below that
level multiple times during the recent volatility, traders
said.
Short sellers who bet on a stock's decline also have large bets
against the tech sector, with technology-focused stocks making up
seven of the 10 most-shorted names, according to S3 Partners, a
financial analytics firm. Investors made $1 billion in paper
profits on Monday betting against the FAANG stocks.
"This tech wreck is not a new story. But we've gotten a
crescendo of bad news, and it seems like this one is lingering
longer because we've had more questions crop up that haven't been
answered yet," said Art Hogan, managing director and chief market
strategist at B. Riley FBR.
Monday's selling came on the heels of broader shakiness in the
stock market, which has struggled for traction this year as
investors have contended with the prospect of rising interest
rates, global trade tensions and sliding technology shares.
Many investors remain optimistic about the tech industry's
growth potential. Technology companies in the S&P 500 are
expected to post year-over-year earnings growth of 22% in the first
quarter, according to FactSet, eclipsing the broader S&P 500's
expected 17% earnings growth rate and building on a strong fourth
quarter.
But the recent volatility in tech stocks has investors
questioning whether impressive growth will be enough for a sector
that many had feared had run up too far, too fast.
Technology stocks soared last year, with Facebook jumping 53%,
Apple running up 46% and Alphabet ending the year up 33%. The
sector's rally sparked fears among some analysts that the
technology sector could be headed toward a repeat of March 2000,
when highflying dot-com stocks crashed, leading to a broader market
selloff.
More than a third of global fund managers say bets on FAANG, as
well as their Chinese counterparts -- Baidu Inc., Alibaba Group
Holding Ltd. and Tencent Holdings Ltd. -- make up the most crowded
trade in the market, according to a Bank of America Merrill Lynch
survey conducted last month.
Yet investors are more pessimistic than they were during the
height of the dot-com era in 2000, something analysts say
distinguishes the run-up in technology shares then with the tech
sector's more recent dominance.
Just 31% of individuals expect stocks to rise over the next six
months, according to a survey released last week by the American
Association of Individual Investors -- compared with 58% just
before the Nasdaq peaked in March 2000.
Write to Akane Otani at akane.otani@wsj.com, Michael Wursthorn
at Michael.Wursthorn@wsj.com and Ben Eisen at ben.eisen@wsj.com
(END) Dow Jones Newswires
April 02, 2018 17:36 ET (21:36 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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