Shares in technology companies – the driver behind recent record stock market gains – kept falling on Monday as investors worried the sector was running out of steam.
On Friday, the tech-heavy Nasdaq Composite Index, home to Alphabet, Apple, Amazon, Facebook, Microsoft and others, fell 1.8% and the slide continued on Monday, with the index down another 0.52% as market analysts anticipated more wobbles ahead of a crucial meeting of the Federal Reserve this week.
Technology stocks have done far better than the rest of the market this year and they were trading close to all-time highs before Friday’s drop. The S&P 500 technology index shed 2.7% on Friday for one of its worst days of the year.
The climb has made fortunes for investors, and for tech entrepreneurs. Amazon founder Jeff Bezos has seen his net worth soar by almost $20bn (£16bn) in the past five months to $85.2bn. Bezos’s fortune is closing in on that of Bill Gates, the co-founder of Microsoft, whose net worth is $89.3bn, according to the Bloomberg Billionaires Index. Bezos could become the world’s richest man if the tech stocks continue to grow.
Jack Ablin, chief investment officer at BMO Private Bank, said it was too early to say whether the last two days of trading would develop into something worse for the tech sector but added that there were worrying signs.
“The tech sector has been the stock market’s best performer, and some people may be taking profits or rotating their investments into different sectors,” he said. “But there is also some concern about what the Fed will do.”
Stock markets have been bolstered by the huge amounts of money the Fed and other central banks have poured into bond markets in an attempt to keep interest rates at record lows. Low rates have made stock investments more attractive but the Fed has signaled that rates in the US are now on the rise, albeit from a low base.
The Fed meets on Tuesday and Wednesday this week and its chairwoman, Janet Yellen, is expected to announce another rate rise at her press conference when the meeting concludes. “Everyone fully expects a rate rise this time,” said Ablin. “What matters is what the Fed says about the rest of the year. Given their gains, tech is probably going to be the most sensitive sector to be affected by that. We will know more after Wednesday.”
Strong quarterly earnings have helped technology stocks fill a void left by financial and industrial stocks after a post-election rally faded. The S&P 500 technology index has risen 18.5% this year and is on track to register its best yearly performance since 2014.
“The real heavy lifting, or 40% of the move, that we saw was really on the back of a handful of technology stocks,” said Art Hogan, chief market strategist at Wunderlich Equity Capital Markets. “So when you have a trade that is so crowded, that unwind becomes as dramatic as the one we saw on Friday.”
Investors saw an opportunity to book profits on Friday after Apple shares plunged amid reports that the company is using slower modems in forthcoming iPhones, compared with those used in rival phones.
Shares of the world’s most valuable publicly listed company were off 2.46% at $145.32 on Monday.
Mizuho Securities also cut its rating on Apple’s stock to “neutral” from “buy” on Monday, citing it has outperformed this year and enthusiasm over the “upcoming product cycle is fully captured at current levels”.
Fergus Shaw, fund manager at Cerno Capital, told Reuters: “This is the nature of the tech sector. Valuations do from time to time become very stretched and they come back and anyone who has paid a very high valuation might experience some short-term pain.”
