FANG Index Slides Into Correction Territory -- Update
July 30 2018 - 5:19PM
Dow Jones News
By Akane Otani
A closely watched stock index of global technology giants
tumbled into correction territory Monday, showing the fragility of
investors' bets on the popular FANG group of stocks.
The NYSE FANG+ Index -- which comprises 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.
The index fell 2.8% Monday, slipping 10% below its June 20
record and entering 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 on 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 2.2%
and Twitter down 8%. 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 1.8%.
Netflix, which posted disappointing subscriber numbers earlier
this month, fell 5.7%, bringing its July losses to 14%. 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 17:04 ET (21:04 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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