Shares of Facebook, Apple and other technology heavyweights dropped on Wednesday, making vulnerability about whether the top-performing sector’s record-breaking rally this year is finishing or just taking a break. A day in the wake of hitting a record high, the S&P 500 information technology index fell 2.9% and was on track for its worst session since June. The Philadelphia Semiconductor Index dropped 4.38%, heading for its worst session in a year.
Wednesday’s was the latest in a modest bunch of technology selloffs this year that increased chances that the sector’s rally may end. Previous tech drops were short-lived and were trailed by record highs. “It’s all rotation. What we’ve had is money flowing into these stocks again and again for so long, like Apple, Facebook, Google. Now you’re seeing that trade reverse,” said Dennis Dick, head of markets structure at Bright Trading LLC in Las Vegas.
Facebook, Apple, Amazon.com, Netflix and Google parent-company Alphabet-the so called FAANG stocks that have helped power the S&P 500’s 17-percent rally this year – all lost ground. Apple fell 2.5%, decreasing its gain this year to 45 percent. Facebook slid 3.8%, Alphabet lost 2.5% and Netflix slumped 6.8%. Those losses were offset by a jump in banks as well as telecommunications stocks, which have under-performed this year. Sports apparel seller Under Armor, the S&P 500’s worst performer in 2017, revitalized 5.2%.
Still, the S&P 500 IT index has gained 36% out of 2017, representing a quarter of the general S&P 500’s $24 trillion value, the highest proportion since the dot-com bubble in 2000. The semiconductor index has surged 41% this year, helped by strong worldwide interest for chips as well as a wave of consolidation across the industry.
Those soaring prices have left the tech sector exchanging at 19 times expected earnings, versus the S&P 500’s P/E multiple of 18, as indicated by Thomson Reuters Datastream.
Pulled in to better than expected earnings growth in a tepid worldwide economy, investors have been willing to pay premium prices to claim driving technology companies that are expanding their piece of the overall industry and growing rapidly. “They’re rallying because they have new business models that legacy companies are having a hard time adjusting to,” said Jim Bianco, president of Bianco Research in Chicago, adding that he was recommending to clients that they take advantage of Wednesday’s drop to buy more tech shares.
Source: News18 Tech