Tech Selloff Shows Flip Side of a Crowded Trade
By Ben Eisen
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 firstname.lastname@example.org.
There are no key events today.
Aramco Scales Back IPO Plan, Eyes Saudi-Only Listing: Higher price of oil has diminished push for large international public offering.
Whistleblowers Helped SEC Bring $415 Million Settlement Against Bank of America: SEC announces highest-ever whistleblower awards totaling about $83 million.
Uber Suspends Driverless-Car Program After Pedestrian Is Killed: Accident in Tempe, Ariz., is believed to be the first such fatality from an autonomous vehicle.
Executives at Cambridge Analytica Tout Entrapment Tactics on Video: Executives at Cambridge Analytica, a data firm that worked for President Trump’s 2016 campaign, advertised tactics—such as entrapping political opponents with bribes and sex—in a sales pitch captured by undercover journalists at British broadcaster Channel 4.
Weinstein Co. Files for Bankruptcy: Dallas-based investment firm Lantern Capital has struck a deal to purchase the assets of Harvey Weinstein’s film and TV studio in a transaction that requires the troubled entertainment company to file for bankruptcy.