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By Steven Russolillo 

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 (March 29, 2018).

The clobbering that 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.

Investors are concerned that the tech giants have grown so much and so fast in recent years that they now carry outsize weight. Combined, the five largest U.S. technology and internet companies account for more than 14% of the S&P 500 index's weighting. Their rapid gains have come alongside heavy inflows into passive funds that track indexes like the S&P 500, leaving millions of investors susceptible to greater downside.

Tech shares came under more pressure Wednesday amid fears of increased regulatory oversight. The NYSE FANG+ Index -- which tracks 10 global tech heavyweights -- fell 2.4%, extending losses after suffering its worst one-day drop on Tuesday.

Major U.S. indexes continued slumping as well in another volatile session that saw the tech-heavy Nasdaq Composite slip 0.9% and underperform the S&P 500 and Dow Jones Industrial Average, which posted modest losses. The S&P 500 technology sector is down 6% so far this month.

Amazon.com Inc. and Tesla Inc., both components of the NYSE FANG+ Index, were among the weakest performers Wednesday. Amazon fell 4.4% and closed in correction territory -- off more than 10% from its March 12 high -- amid speculation that the White House wants to clamp down on the e-commerce giant's growing dominance.

White House press secretary Sarah Huckabee Sanders said on Wednesday that President Donald Trump wants "a level playing field "for all businesses but noted "there aren't any specific policies on the table at this time."

Tesla, meanwhile, slumped 7.7%, 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 Tesla bonds also intensified, driving the price of its unsecured debt to new lows.

Facebook Inc. has been the worst performer among the big tech companies, 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.

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 from tech stocks' leadership of the market, 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.

Highflying companies including Microsoft Corp., Alphabet and Facebook were among the most widely held last year by institutional investors, such as pension funds and endowments, according to eVestment data. Apple Inc. and Amazon, technically a consumer stock, also cracked the top 10 in ownership breadth.

As of March 12, Facebook, Amazon, Apple, Microsoft 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.

The overall tech sector now has a 27% weight in the S&P 500, making it by far the largest component. Financial stocks, in second place, account for 17%, according to Thomson Reuters.

"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."

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.

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. Its share price 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 sold some of it stake in 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" -- meaning investors expect flawless performance by the company. This can prompt sharp pullbacks, like the selloff seen last week.

--Ben Eisen contributed to this article.

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

(END) Dow Jones Newswires

March 29, 2018 02:47 ET (06:47 GMT)

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