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Mar 20, 2018

The Wall Street Journal | Money Beat on March 20, 2018.

The Wall Street Journal
MoneyBeat

Tech Selloff Shows Flip Side of a Crowded Trade

By Ben Eisen 
Europe
Asia
FTSE 100 0.48%
Nikkei 225 -0.47%
DAX 0.5%
Hang Seng 0.11%
CAC 40 0.39%
Shanghai 0.35%

Overnight Developments

  • Global markets bounced between losses and gains amid calls for greater scrutiny of the technology sector. S&P 500 futures pointed to opening gains of 0.2%.
  • The Stoxx Europe 600 ticked higher by 0.4%.
  • Earlier, Japan’s Nikkei Stock Average fell 0.5%.
  • The Breakfast Briefing

    Monday's market selloff began with a sharp drop in Facebook Inc. shares and ended up illustrating the flip side of the crowded bet on technology giants.
    The social media company’s stock fell 6.8%, its worst one-day percentage drop in four years. That occurred after the company said a firm tied to President Donald Trump’s 2016 election campaign had gathered data from millions of Facebook profiles without authorization. Investors on Tuesday will look for signs of whether the volatile stretch is set to continue.
    The Monday selloff rippled across the market, dragging the S&P 500 technology sector down by 2.1%, more than the broader S&P’s 1.4% tumble. Google parent Alphabet Inc. dropped by 3%, due partly to fears of heightened scrutiny from regulators, despite its lack of ties to the Facebook developments.
    “We acknowledge Alphabet may face increased regulatory scrutiny due to ‘guilt by association,’” said Kevin Walkush, portfolio manager of the Jensen Quality Growth Fund, in e-mailed comments. Mr. Walkush’s fund counts Alphabet as one of its 27 holdings.
    Monday’s rout illustrates how the investor enthusiasm that lifted all technology stocks together can similarly reverse course. The tech sector, which has climbed 32% over the last 12 months, also had sharp reversals with little explanation in June and September.
    Shifting sentiment stands to have an outsized effect when investors are making one-way bets on a continued rise in the sector. Fund managers last month cited wagers on a handful of tech stocks as the most crowded trade, according to a Bank of America Merrill Lynch survey. A Goldman Sachs report from last month listed Facebook as second among the stocks that most often appear in hedge funds’ 10 largest holdings, second only to Amazon.com Inc.
    Facebook sold off amid investor fears that the data breach would heighten scrutiny from lawmakers. European Union officials said they would probe the company’s handling of data. Members of the U.S. Congress pushed for an aggressive inquiry and possible additional regulation of digital advertising.
    Investors said they don’t necessarily believe the Facebook developments will lead directly to more profit-crimping regulation across the tech industry. But for shareholders who have watched the stock market price in expectations of uninterrupted growth, this proved to be an opportunity to harvest some profits.
    “This is a space that has been very, very well owned and it has led the market for the past 16 months, and quite frankly longer than that,” said Jim Tierney, chief investment officer of concentrated U.S. growth at AllianceBernstein Holding L.P. “And so I think it’s just money moving out of the space.”
    Are you selling technology stocks? Let the author know your thoughts at ben.eisen@wsj.com.
    Market Snap at 03/20/2018 08:05:02 AM ET
    S&P 500 Futures 0.2%
    2728.25
    DJIA Futures 0.11%
    24717
    U.S. 10 Year -3/32
    2.867%
    WSJ Dollar Index 0.21%
    83.99
    Crude Oil 1.24%
    $62.83
    Gold -0.42%
    $1312.20

    Key Events

    There are no key events today.

    Stocks to Watch

    Facebook—Down 1.1%: Facebook shares had their worst day in almost four years Monday, falling 6.8% and dragging down the broader technology sector. The firm is facing a firestorm over how it manages third-party access to its users’ information.
    Oracle—Down 8.6%: The software firm said quarterly cloud-computing revenue reached $1.57 billion in the most recent quarter, meeting the company’s tamped down expectations. Still, some investors thought healthy tech spending would push revenue higher.
    Amazon.com—Up 0.2%: Bloomberg reported that the e-commerce giant has considered the possibility of expanding its retail footprint by acquiring some locations from bankrupt Toys “R” Us Inc.

    Number of the Day

    1
    The number of stocks in the 30-company Dow Jones Industrial Average that rose on Monday as the blue-chip index fell 1.3%. The stock, Boeing Co., is among the best performers in the Dow this year.

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