Russian trolls on Facebook apparently sent messages to the Trump campaign during the 2016 election. Buzz60
Investors apparently don’t like the data privacy controversy engulfing Facebook. And that thumbs-down attitude is a big reason why shares of the social media giant, technology stocks and the broader market are down sharply Monday.
Facebook has come under fire after a political intelligence firm accessed the Facebook profiles of more than 50 million users without their permission, an episode that raised questions over privacy and why Facebook didn’t alert users.
Investors also worry that Facebook and other social media companies could come under increased regulatory scrutiny.
The troubles for Facebook, which is one of the most popular stocks on Wall Street, is causing troubles for the broad stock market.
At 12:15 p.m., Facebook shares were down $13.94, or 7.5%, to $171.16, a swoon that has wiped out an estimated $33 billion of the stock’s value. The stock is on pace for its worst daily percentage drop since Sept. 24, 2012, according to FactSet. It is the biggest loser today in the S&P 500 stock index and is now negative for the year after starting the session up nearly 5% in 2018.
Shares of the other FAANG stocks — an acronym that also includes Amazon, Apple, Netflix and Google parent Alphabet — were also down. Including Facebook, the FAANG names had lost more than $85 billion in market value Monday.
A tech industry in the crosshairs of regulators is a negative, according to Wall Street.
“A tecklash’, or political backlash against the concentrated power and influence of leading U.S. technology companies, is building and gaining momentum,” says Joe Quinlan, chief market strategist at U. S. Trust. “Investors fear that more regulation and political oversight is coming to ‘Big Tech’, a prospect that could impinge on future earnings.”
Wall Street, Quinlan adds, is also worried about a related risk: “Rising digital protectionism, as more governments, like the European Union and China, clamp down on the monopolistic positions” of the big tech companies.
Facebook’s issues have hurt the Nasdaq composite the most. The tech-packed index is down 2.1%, with the Dow Jones industrial average, which doesn’t include Facebook, off 1.2%.
The FAANG stocks have been driving the market higher, partly due to their strong sales and profit growth, but also because the Nasdaq is a market-weighted index. That means the price moves of stocks with higher market values have a bigger impact on the index. In good times, that positive feedback loop pushes the Nasdaq higher, but the reverse happens when Facebook and the other popular tech stocks are falling in price, explains Brad McMillan, chief investment officer at Commonwealth Financial Network.
“When the (stocks) start to reverse, these large companies can have a disproportionate effect on the downside, and that is what we are seeing with Facebook today,” says McMillan.
Tech stocks now account for more than 25% of the broad Standard & Poo’rs 500 stock index, with the financial stocks the next largest at nearly 15% of the index, according to S&P Dow Jones Indices. And a lot of investor cash has been rushing into the popular and well-performing tech sector.
“Facebook (is) likely a symptom of an overbelieved tech sector,” says Bruce Bittles, chief investment strategist at Baird. The record level of cash flowing into stocks and ETFs, or exchange-traded funds last week, “suggests lots of optimism and a large percentage of that money went into tech.”
But Facebook’s troubles aren’t the only thing weighing on stock prices. Other worries include:
Interest rate angst
The Federal Reserve kicks off a two-day meeting on interest rates Tuesday. The nation’s central bank is widely expected to hike short-term interest rates a quarter of a percentage point.
But what Wall Street fears is if the Fed and its new chairman, Jerome Powell, signal that they now see four rate increases this year, one more than the three signaled back in December.
“We think we know what Powell and the Fed will do, but we are not really sure,” McMillan says.
Trade war fears
Wall Street is also worried about the possibility of a trade war resulting from President Trump’s threatened move to levy additional tariffs on trading partners, including China, beyond the import taxes he has already slapped on steel and aluminum. Fears of retaliation from countries around the globe has Wall Street worried, as an all-out trade fight is seen as a negative for both the U.S. and global economy.
“Markets need certainty … (but that) is being tested on many fronts,” says Quincy Krosby, chief market strategist at Prudential Financial. “With rate uncertainty and implications for tariffs on China pending … the market may have to deal with increased volatility as it searches for clarity.”
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