Losses spill over into other segments, with all S&P 500
sectors down on Monday
By Akane Otani, Michael Wursthorn and Ben Eisen
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 3, 2018).
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 03, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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