U.S. Stocks Dragged Down by Tech Sector
May 20 2019 - 06:31PM
Dow Jones News
By Avantika Chilkoti and Michael Wursthorn
Shares of technology companies skidded after some U.S.
businesses moved to comply with restrictions against Huawei
Technologies, setting up major stock indexes for another tough week
amid the escalating trade spat.
Investors retreated from Google parent Alphabet, Qualcomm and
other technology stocks following reports that those businesses
were cutting Huawei's access to their technology after the Trump
administration put Huawei on a trade blacklist. The moves prompted
concerns that the latest actions could further inflame trade
tensions between the world's two largest economies.
Most concerning is China's potential to retaliate against U.S.
tech companies that have significant exposure to the country, some
investors said. The S&P 500 ended up falling 19.30 points, or
0.7%, to 2840.23, potentially setting the broad index up for its
third straight weekly loss.
Chip makers and hardware manufacturers were among the hardest
hit, with Apple, Alphabet and Qualcomm logging significant
losses.
"With the news around the U.S. and Huawei taking a turn for the
worse, it seems that the trade war is increasingly showing signs of
becoming a tech war," said Seema Shah, a senior global investment
strategist at Principal Global Investors. "The further this trend
develops, the bigger the collateral damage will be, particularly in
Asia and the U.S."
The Dow Jones Industrial Average and Nasdaq Composite followed
the S&P 500 lower. The blue-chip index shed 84.10 points, or
0.3%, to 25679.90, while the tech-heavy Nasdaq declined 113.91
points, or 1.5%, to 7702.38.
Monday's losses extended the recent pain tech stocks have
experienced since trade tensions resurfaced earlier this month.
Those stocks fell by an additional 1.7% on Monday, extending tech's
losses for May to 6.1% -- the second biggest loss month to date out
of the 11 major S&P 500 sectors, behind shares of materials
companies.
Those losses could worsen, analysts warn, as the trade dispute
continues to roil the market. There is the potential for a rebuttal
from China against U.S. tech companies, many of which, like Apple,
have significant exposure to China. The latest round of tariffs are
also expected to put additional pressure on profit margins. Tech
stocks are the best-performing sector of the year, and some
investors say they have been trimming those holdings to lock in
gains in case market conditions deteriorate.
"The recent action against Huawei confirms our view that the
relationship between Washington and Beijing will remain tense,"
analysts at UBS Group AG's global wealth-management arm wrote in a
note to clients. "The growing rivalry between the world's two
largest economies will simmer in the background, with repercussions
on business and investments."
Shares of Alphabet slid $24.12, or 2.1%, to $1,144.66 after it
was reported that the company will restrict Huawei's access to
certain Android features. Qualcomm, which fell by $4.88, or 6%, to
$76.62, suspended shipments of its chips to Huawei.
Shares of Apple declined $5.91, or 3.1%, to $183.09 after HSBC
cut the iPhone maker's price target, pointing to its exposure to
the trade conflict.
Tesla fell to its lowest level in a year after analysts cited
concerns about the electric-car maker's growth prospects and the
underlying demand for its Model 3 vehicle. Shares fell $5.67, or
2.7%, to $205.36. Including Monday's declines, the S&P 500 has
given up more than 3% this month since the U.S.-China trade
tensions re-emerged.
Investors are now positioning themselves for more bouts of
volatility, a sign that many expect the market's erratic swings to
continue. Assets in exchange-traded funds that tend to profit when
volatility rises hit a record $3.1 billion in May, according to
FactSet data.
Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com and
Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
May 20, 2019 18:16 ET (22:16 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.