Shares in the technology sector including the normally abounding FAANG stocks have been struggling to attract investors lately as they worry about the notion of potential overvaluation.
The S&P's 500-stock index dropped this Thursday afternoon, with FAANG shares heralding the decline. Facebook (NASDAQ: FB) was down by 1.1% and Apple (NASDAQ: AAPL) fell by 1.2%. The benchmark S.& P. index has risen 17% in the last year, feeding fears regarding overvaluation and leading investors to cache their profits as they play it safe.
The trend of decline seems to be grounded in a fundamental law of physics: what goes up must come down.
Many tech companies have sold shares as hot stocks in the past year, some even up more than 30%. However, investors are starting believe that this latest group of tech titans may be starting to "plateau," says tech fund manager Kevin Landis, chief investment officer at Firsthand Funds. "Investors are having pangs of doubt." And everybody knows that a shred of uncertainty in markets as volatile as these can result in massive financial upheaval.
Investors are also anxious about the U.S. economy's ability to weather a third interest rate hike later this year and the Fed's plans to trim its balance sheet, particularly after a recent set of uninspiring economic data. This, coupled with volatility on Trump's part, has pushed investors to be on the defensive.
The tech decline may also be the result of the domino effect, with Google's parent Alphabet (NASDAQ: GOOGL) falling 1.8% following a Canaccord Genuity downgrade, giving investors more reasons to sell the stock. Considering that Apple has conventionally been at the forefront of the technology sector, serving as a flagship for growth and stability, it only makes sense that other FAANG shares fell soon after as investor's lost confidence in the ringleader of these types of stocks.
"It felt like someone took a pin and popped the balloon," said Gary Kaltbaum, president of Kaltbaum Capital Management, referring to Friday's tech downdraft.
Friday's selloff was partly produced due to a statement of caution from Goldman Sachs. The note argued that investors were treating tech stocks more like defensive companies that sell everyday staples that have somewhat inelastic demand. Goldman's fear was that treating tech like less volatile names would draw more money into the sector, making it vulnerable to price declines if those money flows start to "reverse". Investors seemed to have heeded this warning, paradoxically yielding the exact same effect that Goldman warned of.
Nonetheless, some would argue that the "tech wreck" is in fact a buying opportunity because of the price dip. However, the chance to buy is also attached to a vicious selling threat as overbought markets are vulnerable. Thus, buying in limited amounts is recommended so as to not spark any selling wars. Moreover, what the market needs right now is stability and a sudden polarization of dispositions will not aid this in any way: it may in fact have the opposite effect.