Wall Street’s big tech rally is on the verge of collapse as more and more doubts about its sustainability and the business models of the likes of Facebook, Alphabet (Google) and Twitter start to eat into the confidence abut the likes of Apple, Amazon and Microsoft.
The S&P 500 tech sector peaked on March 12 at 1,233.93, putting its market value at about $US6 trillion. By Tuesday’s close, the market cap was down under $US5.5 trillion, a decline of more than 8%, thanks especially to a 4.5% slide in the value of Amazon on Wednesday on reports that president trump has decided “to go” after the online giant.
This was after the the Facebook generated revolt at the social media data machines has see the tech sector sell off sharply. The so-called FAANG index (Facebook, Apple, Amazon, Netflix and Google (Alphabet) saw its biggest one day fall on Tuesday 5.6% since the index was created back in September 2014. The FAANGs have lost an aggregate $380 billion in value since March 12.
With one trading session to go the tech slide has left Wall Street on track for hefty monthly losses. The Dow is down 4.7% in March, and it is off 3.6% so far this year. The S&P is down 4% so far this month, while the Nasdaq is down 4.4% in March.
Facebook shares are down more than 13% so far in March, Alphabet shares are off 6%, Twitter shares are down over 20%, and Amazon shares are now off 4.3% so far this month, after being up sharply in the first 10 days.
Netflix (up 48% for the month, but down just on 2% so far in March) is the stand out because there doesn’t seem to any problem with its data policy and privacy, Microsoft shares are down 3.7% so far in March and Apple shares are down more than 4.8% this month. All were enjoying solid gains in the first 10 days of the month.
Twitter shares ended Wednesday down nearly 12% for the month. And while the shares remain up 18% year to date – 10 days ago they were up close to 40% year to date. The shares fell more than 12% last week.
Short sellers and worries about data and the company’s business in Israel are hurting its outlook as is the ‘fake news’ controversy and data security fears generally in the wake of the Facebook scandal.
On top of this the fatality involving a Uber autonomous vehicle in Arizona is hurting tech stocks, as is increasing scepticism abut Tesla which is due to update the market next week on its production performance and plans for the rest of the year.
Moody’s added to the pressure on Tesla investors late on Tuesday, cutting the company’s junk-bond credit rating down a notch to B3 and warning it may fall further if the company has trouble raising $US2 billion or more of fresh capital.
The rating agency’s move after an 8% plus slide in Telsa shares on Tuesday and more than 7% on Wednesday. Telsa shares are down more than 22% so far this month.
The Financial Times pointed out that Telsa “Debt investors have not been spared the pain, with the company’s 2025 unsecured notes trading at about 89.7 cents on the dollar.”
"In a note explaining its move, Moody’s said production delays for Tesla’s Model 3, launched last summer, were putting financial strains on the company. Tesla had $3.4bn in cash at the end of last year. But Moody’s predicted it would need $2bn this year to cover its operating cash burn as it scales up production of the Model 3 production,’ The FT reported.
