CSCO Cisco Systems Inc

By Akane Otani, Michael Wursthorn and Ben Eisen 

Shares of the biggest names in the technology industry extended their three-week decline Monday, raising fears among investors that cracks could finally be appearing in what had been one of the most enduring trades of the past year.

All together, the so-called FAANG stocks -- Facebook Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google parent Alphabet Inc. -- which powered major indexes to repeated highs last year, lost $78.7 billion in market value Monday, bringing their declines since the Nasdaq Composite's March 12 peak to $397 billion.

As the rout intensified, shares of companies ranging from chip makers to electronic-payment providers to biotechnology firms tumbled too, highlighting the indiscriminate selling spreading across the technology industry. Every stock in the S&P 500 technology sector ended lower for the day.

The losses spilled over into other segments of the market as well, with all 11 sectors of the S&P 500 and 28 of the 30 components in the Dow Jones Industrial Average dropping. The S&P 500 fell 2.2%, while the blue-chip index fell 1.9% and the tech-heavy Nasdaq Composite lost 2.7%.

"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 Facebook's recent admission that a third-party firm with ties to the Trump administration had improperly kept its users' data has sparked concerns among many investors -- from Wall Street to mom and pop -- that other tech companies, such as Google or Amazon, could be suffering from similar, if not bigger, issues, Mr. Karrlsson-Willis and other money managers said.

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.

Amazon shed 5.2% on Monday after 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 fell 2.8%.

Among the other names in the red, chip maker 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%.

"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.

At the same time, traders said a series of technical factors helped reinforce the concern that momentum in the market is waning. The S&P 500 on Monday 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 ahead, 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.

Still, 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 tech could be headed toward a repeat of March 2000, when highflying dot-com stocks crashed, leading to a broader market selloff.

The FAANG shares are now mixed for 2018 -- only Amazon and Netflix remain in the black, while all three major stock indexes are lower. The Nasdaq Composite gave up its gains for the year on Monday and is down 9.5% from its high three weeks ago.

When asked to identify the trades they felt had been overplayed in the market, 38% of fund managers named FAANG stocks as well as their Chinese counterparts -- Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. -- 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 19:43 ET (23:43 GMT)

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