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By Akane Otani 

A closely watched stock index of global technology giants tumbled toward correction territory Monday, showing the fragility of investors' bets on the popular FANG group of stocks.

The NYSE FANG+ Index -- which includes Facebook Inc., Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc., as well as Apple Inc., Twitter Inc., Tesla Inc., Nvidia Corp. and Chinese behemoths Alibaba Group Holding Ltd. and Baidu Inc. -- slipped Monday as investors pulled back broadly from technology shares.

In afternoon trading, the index was down 2.7% and on course to close 10% below its June 20 record. If the index holds its losses, it will have entered correction territory for the second time this year -- something that last happened three years ago, according to the WSJ Market Data Group.

The FANG stocks have soared past the S&P 500 this year as investors bet on technology upending the ways people shop, communicate and entertain themselves. But over the past month, a number of the FANG stocks -- as well as other technology stalwarts, such as Twitter -- have tumbled following disappointing earnings reports and cautious outlooks about future growth, with Facebook logging Thursday the biggest one-day loss in market value of a publicly traded company and Twitter notching its biggest one-day decline in years on Friday.

Both stocks continued slumping Monday, with Facebook off 3.6% and Twitter down 7.2%. Those declines helped drag down other stocks such as Amazon.com and Alphabet, whose shares had initially jumped after their latest quarterly results flew past analysts' estimates. Amazon tumbled 2.1%, while Alphabet slid 1.6%.

Netflix, which posted disappointing subscriber numbers earlier this month, fell 4.7%, bringing its July losses to 13%. Apple, which is often grouped with the FANG stocks, fell 0.6% ahead of Tuesday's earnings report, which will be the next big test for the industry.

Moving forward, "there is going to be more scrutiny for the FAANG names, " said Omar Aguilar, chief investment officer of equities at Charles Schwab Investment Management, adding that "clearly the valuations for certain parts of the technology sector are a little bit stretched."

In recent months, many investors have grown increasingly wary of companies in the social-media space, some of which have run into issues with slowing user growth, controversy over their handling of misinformation and harassment and scrutiny by regulators. Reports in March showing Facebook had allowed a third-party firm to improperly access tens of millions of users' data sent many of the year's best-performing technology stocks tumbling, in what was the first correction for the NYSE FANG+ index this year.

While some investors used the spring pullback as an opportunity to scoop up shares at a discount, betting that companies dependent on data ultimately wouldn't be affected by increased scrutiny by regulators, others have remained cautious ever since -- especially after an uneven round of earnings results.

"Facebook had lower users and Twitter had lower users -- so people are wondering if this is a continuing trend of users seeking out other avenues," said Mohit Bajaj, director of ETF trading solutions at brokerage WallachBeth Capital. "I do think there's been conviction as far as profit-taking because a lot of these tech names have run up so far."

At this juncture, Charles Schwab's Mr. Aguilar believes investors would do well to diversify their holdings. He added that he thinks specific areas within the technology industry -- namely e-commerce and consumer electronics -- are more likely to fare well in the second half of the year.

As the technology rout continued Monday, short-sellers piled into bets on the industry's behemoths falling further.

Investors betting against Facebook, Amazon, Apple, Netflix and Alphabet are down $8.1 billion for the year. But they have recouped almost a quarter of their 2018 losses in just the past three trading days, raking in around $921 million in mark-to-market profits as of Monday afternoon, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

July 30, 2018 15:49 ET (19:49 GMT)

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