Tech Stocks Retreat as Senate Hearing Proceeds--Update
September 05 2018 - 5:04PM
Dow Jones News
By Akane Otani
Technology stocks tumbled across the board Wednesday as
executives from Facebook Inc. and Twitter Inc. defended before
Congress their efforts to prevent election meddling, the latest
episode showing the vulnerability of investors' bets on megacap
technology companies.
What was unusual about Wednesday's selloff was how
indiscriminate it appeared: hitting not just the social media
titans that were the subject of the Capitol Hill hearing on foreign
influence in the 2016 election but also chip makers, software
developers, online streaming services and videogame makers.
Facebook fell 2.3% and Twitter dropped 6.1%, while Google parent
Alphabet Inc., which didn't send a representative to the hearing,
lost 1%. Streaming giant Netflix Inc. slumped 6.2%, while chip
maker Nvidia Corp. and "Candy Crush Saga" owner Activision Blizzard
Inc. each lost more than 1%.
In all, 59 of the 73 companies in the S&P 500 technology
sector posted losses on the day, a striking retreat for the
best-performing group in the broad index this year. The tech-heavy
Nasdaq Composite shed 1.2% and recorded its biggest decline in
three weeks, while the broader S&P 500 fell just 0.3% and the
Dow Jones Industrial Average rose 0.1%.
"Social media, cybersecurity, cloud -- all of these things have
done exceptionally well this year," said Frank Cappelleri,
executive director and technical analyst at Instinet. As a result,
when even a handful of tech companies are swept up in controversy,
there is the potential for "that much more fallout," he said.
Investors had already been skittish on the technology sector
prior to Wednesday's rout.
The group tumbled in March as controversy over Facebook's
handling of user data raised fears of a broader reckoning. Over the
summer, disappointing earnings and forecasts for growth sent a
number of stocks, including Facebook, Netflix and Intel Corp.,
sliding again.
Yet each time, the tech sector quickly rebounded, something
investors say suggests a rally driven largely by so-called momentum
trading -- when investors pile into the stocks that have run up the
most, regardless of fundamental factors like earnings and
valuations. When the trend reverses, it can spark a broad pullback,
as was the case Wednesday.
"There is an increasing sense by many that some of the more
trendy tech names can only go up, which is putting some managers in
a position where they feel they need to add to positions in the
mega-tech stocks to keep up," said Craig Birk, chief investment
officer of Personal Capital.
The prospect of a prolonged reversal has led global fund
managers to rank bets on the so-called FAANG BAT group -- which
includes tech titans in the U.S., as well as Chinese firms Baidu
Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. -- as
the most-crowded trade for seven consecutive months, according to
Bank of America Merrill Lynch's monthly fund manager survey. That
possibility has also pushed analysts at firms including RBC Capital
Markets and Morgan Stanley to adopt a more cautious stance on
technology stocks, citing the risk the rally has been overdone, as
well as the recent shift among investors toward bond-like sectors
of the stock market.
Yet growing wariness among investors has done little to dent the
technology sector's rally.
Technology stocks in the S&P 500 remain up 18% in 2018, by
far the best-performing group in the broad index, which is up 8%.
Amazon.com Inc., part of the S&P 500 consumer discretionary
sector, followed Apple Inc. on Tuesday to become one of two U.S.
companies to reach $1 trillion in market value. The two, along with
Facebook, Netflix and Google parent Alphabet, make up the FAANG
group.
Wednesday's pullback was a reminder to investors of the
fallibility of the tech trade, which has dominated the latest leg
of the nine-year bull market. Amazon, Apple and Microsoft Corp.
have accounted for more than 35% of the S&P 500's total return
this year, according to S&P Dow Jones Indices data through Aug.
28.
After a big run-up, "people are just looking for a reason to
take profits," Mr. Cappelleri said.
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
September 05, 2018 16:49 ET (20:49 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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