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By Steven Russolillo 

The clobbering tech shares have taken in recent days has magnified not only how influential these companies have become in people's everyday lives, but how much sway they have gained in global stock markets.

The NYSE FANG+ Index -- which tracks 10 global tech heavyweights, including Facebook Inc., Apple Inc. and China's Alibaba Group Holding -- continued falling Wednesday after suffering on Tuesday its worst one-day drop in data going back to September 2014.

Investors' concern is that these companies have in recent years grown so much and so fast that they now have outsize influence on broader stock indexes, such as the S&P 500 and the Nasdaq Composite. Their rapid gains have come alongside heavy inflows into passive funds that track these indexes, leaving millions of investors susceptible to greater downside should tech stocks struggle more.

In the U.S., Facebook has been the worst performer among tech giants, falling 13% this year amid controversy over how it handles users' data. Chief Executive Mark Zuckerberg expects to testify before Congress about the company's privacy and data-use standards, in what would be his first public testimony before lawmakers.

Shares of Apple Inc. and Google parent Alphabet Inc. are also down for the year, faltering in recent weeks on concerns that tech firms face tighter regulation.

Amazon.com Inc. and Tesla Inc., both components of the NYSE FANG+ Index, were among the weakest performers Wednesday. Amazon fell 4.7% and is on pace to close in correction territory amid speculation that the White House wants to clamp down on the e-commerce giant's growing dominance.

Tesla, meanwhile, slumped 7.2%, extending its Tuesday's tumble, amid an investigation into a fatal Tesla crash and following a Moody's Investors Service rating downgrade on the electric auto maker's debt. Selling in Telsa bonds also intensified, driving prices to fresh lows.

The tech-heavy Nasdaq Composite has moved at least 2% in four straight trading sessions through Tuesday, the longest such streak since October 2011 -- a contrast from last year, when major global stock indexes like the Nasdaq were unusually calm.

The declines illustrate a rapid shift in investor confidence in the sector, which until recently had been a reliable generator of big returns and a major driver of the market's run. It isn't yet clear whether the selloff marks a permanent shift in the market's leadership, or a temporary hit to the companies' reputations.

Up until recently "these...names have been as close as one can get to a stabilizing force in the market," said Mike O'Rourke, chief market strategist at U.S. brokerage firm JonesTrading.

As of March 12, Facebook, Amazon, Apple, Microsoft Corp. and Alphabet had accounted for 45% of the S&P 500's year-to-date gain, he said, indicating just how central they have become to index moves.

Facebook, Amazon, Netflix Inc. and Alphabet together account for a 7.8% weighting in the S&P 500, more than double from five years ago. The overall tech sector now has a 26.8% weight in the S&P 500, making it by far the largest component. Financial stocks, in second place, account for 16.8%, according to Thomson Reuters.

Should big tech stocks falter further, the broader market could follow suit.

"Due to Facebook's privacy scandal, the techlash theme has been gaining momentum," Mr. O'Rourke said. "Since consumer privacy data is the key competitive edge of these companies, it means the level of risk and uncertainty has risen."

For sure, plenty of investors remain confident tech companies can maintain strong growth rates.

Nearly 90% of U.S. tech companies beat consensus revenue estimates in the fourth quarter, noted Toni Sacconaghi, a tech analyst at Sanford C. Bernstein. That is the best beat rate for any sector and the highest for tech companies in the past five years.

And expectations for tech spending growth for 2018 were the highest in the 14-year history of a Bernstein survey of chief information officers.

The tech sector's growing clout isn't just a U.S. story. Tech stocks have become so dominant in emerging markets that for the first time since 2004, the industry last year overtook finance as the biggest sector in the MSCI Emerging Markets Index.

Tech had a 28% weighting near the end of 2017, more than double its level six years ago, according to data provided by MSCI.

Samsung Electronics Co. carries a roughly one-fourth weighting in South Korea's benchmark Kospi stock index. As the country's biggest exporter, it has fallen 4.4% this year, largely due to concerns about heightened global trade tensions.

Asia's most valuable company, Tencent Holdings Ltd., holds nearly a 10% weighting in Hong Kong's Hang Seng Index. It is close to slipping into the red for the year after disappointing earnings last week and news that an early shareholder was selling a stake in the Chinese internet giant. A two-day selloff last week wiped out $52 billion of the company's market value.

Tencent had more than doubled last year, catapulting its market value above $500 billion.

The company's sheer size has prompted caution among some investors. Eric Moffett, a portfolio manager for T. Rowe Price in Hong Kong, said his fund has owned shares since he started managing it in 2014.

But the fund has underweighted Tencent for the past six months due to valuation concerns, he said. He said shares, trading at 40 times projected earnings, look "priced for perfection" -- which can prompt sharp pullbacks, like that seen last week.

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

(END) Dow Jones Newswires

March 28, 2018 14:14 ET (18:14 GMT)

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