Will U.S. Stock Darlings Continue their Slump?

Technology shares that were the driving force powering the surge in the U.S. stock market are now sputtering, dragging the rest of the market down with it. Some of the most recognizable names in the tech industry have been subject to big losses as they deal with a myriad of crises such as fears of trade wars, regulatory troubles and data breaches. Market leaders such as the so-called ‘FANG’ companies (Facebook, Amazon, Netflix, and Google) which have accounted for much of the market growth over the past five years now find themselves in precarious positions heading into Q2 of 2018. The mass sell-off put pressure on stocks worldwide, and some analysts remain skeptical on whether the storm has passed.

According to a report by Axios, one source close to President Trump said he is “obsessed” with the e-commerce titan, and not in a good way. Five sources have told Axios that President Trump believes that Amazon has gotten preferential tax treatment and stands to put many mom-and-pop retailers out of business. Trump has publicly mentioned the possibility of going after Amazon with antitrust or competition law. The hate for Amazon, who, in recent years has increased its nationwide warehouse presence and ramped up its delivery expertise, seems to be rooted in Trump’s old-school business mentality and his belief that Amazon poses a threat to brick-and-mortar retailers. If you threaten brick-and-mortar, you threaten Trump’s high powered real estate pals. It’s safe to say that Trump’s assault on Amazon is doing little to help consumer confidence.

Facebook recently became embroiled in controversy amid a data breach that has been going on for over two years. The social media pioneer saw its shares plummet after revelations that it shared the data of roughly 50 million users with British political data firm Cambridge Analytica. On Friday, March 16, Facebook announced that it suspended Cambridge Analytica for violating its terms of service by illegally harvesting millions of users’ data without having their consent.

Facebook now faces pressure from American and British lawmakers over how it handles users’ data and how it may be manipulated for political gain through targeted advertising. According to CNN, Facebook has lost nearly $80 billion in market value, and CEO Mark Zuckerberg has seen $14 billion in his personal net worth vanish. Investors worry that Facebook may face tougher regulations and that advertisers may take their business elsewhere in the midst of the scare. While the scandal is likely to blow over, growth could be stymied if users flee over privacy concerns.

Artificial intelligence and computer graphics research firm Nvidia Corporation saw a sell-off in its shares on Tuesday, March 27, after it announced it had suspended the testing of its self-driving car system in the wake of the fatal accident in Arizona involving an autonomous Uber vehicle and a pedestrian 49-year old Elaine Herzberg. Nvidia chief executive Jensen Huang has since clarified that Uber does not utilize Nvidia’s self-driving platform technology, but does use their graphics processing units (GPU).

This important distinction between the relationship between Nvidia and Uber, which was made at the company’s GPU conference later that week, saw the chip maker’s stock rebound and seemed to clear its name of implication in the deadly accident. Analysts have since declared the sell-off as excessive.

Although U.S. stock markets are coming off a sluggish March, investors may have a reason for optimism. April has been, according to the Stock Trader’s Almanac, the second-best month for stock performance dating back to World War II. April performs as the fourth-best month in particular for the technology-heavy NASDAQ. In March, The Dow Jones Industrial fell 3.7 percent, the S&P 500 fell 2.7 percent and the NASDAQ lost 2.9 percent.1

While, to this point, it’s been a winning bet packing your retirement accounts full of large-cap tech stocks such as Apple, Google, Amazon, times like these may serve as a welcomed reminder to not break the cardinal rule of investing: diversification. In fact, many index investors likely have more riding on technology than they realize, and these stocks dominate many actively managed 401(k) plans.

Investors with years of growth potential ahead of them may still be comfortable with their tech exposure after a shaky Q1, but for investors looking to lessen their exposure, moving some profits away from technology and into value-oriented equity funds may be a safer alternative. As always, discuss these types of decisions with a trusted financial professional, as panic selling is not a recommended strategy.