The decade-long bull market that emerged from the Great Recession has produced jaw-dropping wealth from just a handful of megastar technology companies.
But the powerful tech wave has crashed in the past two months, shedding more than $1 trillion in value from the “FAANGs” — Facebook, Apple, Amazon, Netflix and Google — out of the $18 trillion in overall wealth created by stocks after the market’s bottom on March 9, 2009.
The Nasdaq composite index, where many tech companies trade, ended trading Tuesday down 1.7 percent, which is nearly 15 percent off its recent peak, on Aug. 30.
The Dow Jones industrial average lost 551 points, or 2.2 percent, to finish at 24,465. And the Standard & Poor’s 500-stock index fell 1.8 percent. Both have seen their 2018 gains erased.
Shaken investors are wondering whether the tech plunge represents a temporary re-pricing or some more serious vulnerability. In the worst case, it signals deeper trouble in the global economy.
“Technology companies were trading at elevated valuations and priced for perfection,” Ivan Feinseth, chief investment officer at Tigress Financial Partners. “Everyone piled in. When there were a few cracks in the growth trend, everyone piled out at the same time.”
The exodus continued Tuesday, with the tech sell-off spreading into other sectors as the Thanksgiving holiday approached. All 11 sectors of the S&P 500 landed in negative territory, with energy and technology leading the way at 3.5 and 2.4 percent declines, respectively.
Several Wall Street analysts said the tech sector is the downward leader of a market facing multiple threats, including rising interest rates, a strong dollar, trade and tariff wars with China, muted earnings forecast for 2019 and an incoming Democratic House of Representatives that could be less accommodating to business.
“The S&P 500 tech sector has seen its 2019 earnings growth estimate slashed from 11.2 percent to 8.2 percent,” said Sam Stovall, chief U.S. equity strategist at CFRA. “That has reduced the S&P 500’s projected gain to 7.8 percent from 10 percent.”
“A number of head winds face the tech sector right now,” said Kristina Hooper, global market strategist at Invesco.
Facebook is down 39 percent from its high, with a loss of about $250 billion in market cap. Amazon.com (whose founder Jeffrey P. Bezos owns The Washington Post) is down 25 percent. Apple down 20 percent. Netflix 36 percent and Google around 20 percent.
Hooper doesn’t see a systemic threat to FAANG. But they are hurting.
“They are all ‘800-pound gorillas’ in the tech space but are very different from each other,” Hooper said. “There is certainly risk that some are more heavily regulated. And there is a risk that some or all may be more heavily taxed in certain regions of the world, such as the euro zone. People should be cautious with the FAANGs, but they should not paint them all with one brush.”
Apple, celebrated as the first American company to surpass $1 trillion in market capitalization, has been particularly hard hit after it pulled back on forecasts and said it would no longer itemize sales of its iPhone and iPads. Apple has lost more than $220 billion in market cap since its October peak.
Goldman Sachs published a bearish note on Apple stock Tuesday, warning that the company may be losing its pricing power.
“Everybody loved Apple at $220. Now they hate it at $180,” Feinseth said. “That’s a sad Wall Street mentality.”
Apple’s slide has been followed by a decline among a broad set of new technology companies such as Salesforce.com, Nvidia and Oracle.
“All these tech companies are involved in complex supply chains,” Feinseth said. “When the suppliers try to adjust component demand, people glean all different things out of it.”
Market uncertainty seemed to pop up everywhere. Oil prices dropped dramatically and unpredictably Tuesday. West Texas Intermediate was down nearly 7 percent, and benchmark Brent Crude was down almost as much. Oil prices are down about 20 percent over the past several weeks, which some Wall Street watchers see as a sign that the world economy is weakening.
Retailers were slammed Tuesday even as big U.S. retail chains Target and Kohl’s reported good quarterly results and are gearing up for a holiday season with one of the strongest consumer bases in decades.
Boeing dropped for the ninth straight day. The airplane manufacturer, which had been a Dow star in the past couple years of the bull market, has gotten creamed in recent days as the aerospace giant seeks to recover from a crash last month in Indonesia of its workhorse 737 airliner.
Boeing’s long-term strategy is largely pinned on the 737 and its latest iteration, the 737 MAX, “which is where their future lies,” said analyst Jeff Windau of Edward Jones.
Even utilities, a safe haven that often prospers when investors flee stocks, was down Tuesday.
Whether technology will regain its momentum is in doubt.
Apple and Facebook have been pounded in recent weeks following negative news stories, including fears of a drop in demand for Apple’s big driver, the iPhone, and reports of tumult in embattled Facebook’s executive ranks.
“Tech had a huge run-up and was the darling of many investors, so it makes sense that investors punished it when the market climate changed,” Invesco’s Hooper said. “Like Icarus, flying closer to the sun can make your wings melt and cause you to tumble down.”