AAPL Apple Inc

By Steven Russolillo 

The stock market's biggest darlings are no longer immune to the coronavirus.

The largest tech companies and some of the most popular momentum plays fell sharply Monday, declining more than the broader market's sharp selloff and indicating a possible shift in investor mind-set.

The emergence of fresh coronavirus outbreaks in several countries outside China was the fresh catalyst sparking the selloff, even pulling down what previously had been market leaders.

"It's been a fast exit out of the momentum-based trades," said Robert Pavlik, chief investment strategist at SlateStone Wealth LLC, an investment firm in New York with $1.1 billion under management.

Tech giants Apple Inc. and Microsoft Corp. dropped by more than 4% apiece. Popular momentum stocks among individual investors, including auto maker Tesla Inc. and British business mogul Richard Branson's Virgin Galactic Holdings Inc. fell at times by even more. Semiconductor companies such as Qualcomm Corp. and Nvidia Inc. also declined sharply.

Those stocks had marched higher for weeks, with investors often overlooking the spreading coronavirus and its impact on the global economy. Even Apple's warning last week that the coronavirus might cut into sales didn't hurt the stock price that much. And on prior big down days for the overall market, many of those individual stocks had emerged relatively unscathed whereas industrials, energy and materials had been among the market's biggest losers.

Investors had previously bet that giant tech stocks would march on regardless of the coronavirus, putting their faith in companies that promise rapidly increasing profits and revenue. And even though some investors had warned of signs of overexuberance, many of the market's biggest momentum names had managed to hold on to heady gains.

But the narrative shifted Monday. And as it has become increasingly clear that the coronavirus outbreak will disrupt global supply chains more than originally anticipated, investors elected to sell what previously had been some of the market's biggest winners.

"I don't want to be too early to jump back in," Mr. Pavlik said. Referring to the spreading of the coronavirus to more countries, he said: "this could get out of hand pretty quickly and a lot of clients are very worried about it."

He said he recently trimmed positions in Apple and Microsoft. He also increased cash positions to as much as 15% in some client portfolios, more than usual.

The biggest and most popular tech stocks, including Apple, Microsoft, Amazon.com Inc. and Google parent Alphabet Inc. watched Monday's selloff take a bite out of their year-to-date gains. Facebook Inc. turned negative for the year.

The NYSE Fang+ Index, which tracks 10 global tech heavyweights, dropped 5.1%, its fourth worst drop since its inception in 2017.

Tesla, which had more than doubled this year, fell 7.5%. Virgin Galactic, the space-tourism company that went public in October, fell as much as 14% before turning positive in afternoon trading. It has nearly tripled this year.

"The most vulnerable parts of the markets remain those that have risen the most," said Paul Nolte, a portfolio manager at Kingsview Investment Management in Chicago.

And it wasn't just U.S. companies that were hit hard. U.S.-listed Chinese tech giants like Alibaba Group Holding Ltd. and Baidu Inc. fell sharply and are now negative for the year. Shares of Chinese companies listed in the U.S. and many American companies with heavy sales exposure to China have struggled for much of the year.

The declines suggest some investors and analysts are starting to question how much impact central banks in China, the U.S. and others can have in supporting the global economy if the coronavirus outbreak worsens.

"There appears to be far too much confidence in policy makers' ability to stem a crisis," Peter Atwater, a research analyst and adjunct professor at William & Mary, wrote in his newsletter on Friday, before the selloff. He has warned repeatedly about overexuberance in the market.

"This is a mania that is going to end like every other mania. Very, very badly," he said.

Write to Steven Russolillo at steven.russolillo@wsj.com

(END) Dow Jones Newswires

February 24, 2020 17:01 ET (22:01 GMT)

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