Tech Stocks Have Lost Some Of Their Luster, Dragging The Stock Market Lower
Tech stocks were a growth engine for the market when the economy was tepid, but recently they've been sputtering and their troubles are helping drag the entire market lower.
Some of the biggest names in technology have been swooning.
Facebook is mired in a scandal over a breach of its user data, leading to calls for stricter government regulation of the social media giant. Since the beginning of February, its shares have dropped from $193 to $159 — a nearly 18 percent dive.
Amazon has been targeted in tweets by President Trump. On Thursday, he said the online retailer pays "little or no taxes" and is "putting many thousands of retailers out of business." Amazon's shares are still up a lot for the year, but they're down by more than 9 percent since March 12.
Apple, which faces questions about its growth strategy, is down about 8 percent since the same date.
The downturn has swept through the tech sector, dragging down companies that include IBM and Microsoft. The Nasdaq composite index, which includes many tech stocks, has lost nearly 7 percent over the same period. By comparison, the broader Standard and Poor's 500 index is down 5.5 percent.
"The market has a psychology right now of, 'When in doubt, get out. We'll figure out later what happened,' " says Julianne Niemann, a financial analyst at Smith Moore.
The slide is remarkable because tech stocks have long been seen as growth leaders, and investors have for the most part eagerly piled into them.
"If you think about social media, if you think about e-commerce, basically technology is the backbone for all of those different things, and for these corporations it's driven incredible profit growth," says Sameer Samana, global equity and technical strategist at Wells Fargo Investment Institute.
For investors searching for growth stocks in an economy that sometimes seemed anemic, stocks such as Facebook and Apple could look like lonely outposts of promise.
"Tech stocks have been the dominant area," Niemann says. "This is one thing that investors have jumped all over, simply because they can understand them. They love these stocks."
This tech downturn matters, because those stocks occupy an outsize place in the market — making up about 25 percent of the S&P 500, and they make up a big share of the stocks in retirement funds and mutual funds.
Niemann sees the recent turmoil as temporary, noting that conditions are considerably different than they were during the last big market downturn, in 2007-08.
"This is entirely different. We have not had a meaningful correction in a long period of time," she says. "There's so much cash available on the sidelines to invest that everybody keeps jumping in and chasing it back up again."
"The economy is still OK," she adds. "The market doesn't take down the economy."
Samana says the tech industry is still relatively young, and some hiccups are inevitable.
"We're still trying to figure out how things like social media fit into our lives and how data should be managed and all those different things. And so I think this is just part of the growing pains of, 'How do we regulate these companies?' "
But for now, investors are reassessing whether tech is as promising as it once appeared, and their new caution is being felt throughout the market.
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