Tech Stocks Crater - Sending Overall Market Slightly Lower
Tech Stocks Crater - The overall market sold off modestly as it was brought down by tech. The S&P 500 was down 0.28% and the Russell 2000 was down 0.33%. The tech heavy Nasdaq was down 1.19%.
The worst sectors were consumer discretionary and tech as they were down 1.1% and 1.5% respectively. Every other sector besides energy was up. The best performers were consumer staples and utilities which were up 1.18% and 1.27% respectively.
Wednesday was had a bunch of political news which took down the momentum leaders of the market. Amazon stock was down 2.19%, and Twitter was down 6.06%. Facebook fell 2.33% and Snap stock fell 4.53%.
Microsoft stock fell 2.88%, and Netflix stock fell 6.17%.
Tech Stocks Crater - Congressional Testimony Hurts Google, Facebook, and Twitter
The biggest news was that Twitter CEO Jack Dorsey and Facebook COO Sheryl Sandberg testified in front of Congress. It was about social media’s role in effecting elections.
The fear is fake accounts can make politicians look more popular than they are, and fake news articles can change people’s opinions.
The most shared articles are often fake. In the past, social networks didn’t want to take a stand on this issue. Eliminating widely shared content can limit time spent on the platforms and revenue.
The companies including Google are being accused of political bias and anti-competitive practices. Both sides of the political spectrum are attacking these companies which is scary for shareholders of these firms.
When Facebook’s founder and CEO Mark Zuckerberg testified in front of Congress it went well. But since then investors have come to fear the amount of money Facebook will need to spend to monitor its website. It will be interesting to see if the firm’s earnings report can turn the stock around.
Tech Stocks Crater - Netflix Craters On Fear Of Competition From Apple
Netflix’s decline was partially in sympathy with the overall tech sell off from the Congressional testimony. It was also partially over fears of competition from Apple.
To be clear, Netflix doesn’t have any worry about getting in trouble for anti-competitive practices or effecting elections. Netflix was the only momentum stock not declining only because of political issues.
Morgan Stanley updated investors on its projections for Apple’s streaming service which hasn’t launched yet.
Morgan Stanley stated, "We forecast that an Apple Video streaming service with high quality but limited breadth could be priced at the low end vs. competitors, or $7.99/month, and reach over 50M paid subscribers by 2025, compared to 124M at Netflix (current paid streaming subs) and Apple's >650M unit iPhone installed base.
Combined with Apple's stand-alone streaming music business, which we project grows into an $18B revenue generator over the same time period (from roughly $4B at the end of CY18), streaming video and music would become a $22B business by 2025, roughly equal to the size of Netflix and Spotify combined today,"
Tech Stocks Crater - It’s very easy to make broad claims about a potential service that doesn’t exist yet.
Apple Music is doing well even though it is inferior to Spotify. Apple has a huge customer base of iOS users. Apple’s video service will likely be inferior to Netflix. However, Apple controls the ecosystem of products, so it will likely do well. Netflix will also face competition from Disney which will also release a streaming service.
The scary aspect for Netflix is if these firms prevent it from growing as quickly as it is expected to, the company will need to pull back on content spending. This could end the snowball effect it has been utilizing.
Netflix’s excessive liabilities mean a few bad moves and increasing competition can collapse the company. This can happen even though it has an amazing product which will likely be better than what Disney and Apple offer.
Nervousness about Netflix is why the stock sold off on fears of promo videos before shows becoming ads. I am 99% sure Netflix won’t run ads at any point in the next few years.
Tech Stocks Crater - Bernie Sanders Comes For Amazon
On a day where tech and momentum stocks were already falling because of fears of regulations over fake news effecting elections and anti-competitive practices, Amazon also fell. It was because of Bernie Sanders’ planned legislation.
Bernie Sanders’ criticism of Amazon reached a new peak on Wednesday. He and Representative Ro Khanna introduced legislation to tax corporations. This was for every dollar their low wage workers get in healthcare benefits from the government and food stamps.
The bill is called the Stop Bad Employers by Zeroing Out Subsides or BEZOS Act. Amazon has said in the past that Bernie’s claims about the firm’s working conditions were “inaccurate and misleading.”
Interestingly, even though this legislation also targets Wal-Mart. WMT stock was up 1.32%.
Maybe the market doesn’t like the negative publicity from the name of the act. Wal-Mart stock was also helped by the sector rotation into safer sectors like consumer staples.
Tech Stocks Crater - Emerging Markets Plummet
As I mentioned in a previous article, emerging market economies have been underperforming in the past few months.
The MSCI emerging market ETF continued this trend by declining again on Wednesday as it fell 1.44%. At $41.71, it is only 21 cents above the low made on August 15th.
That’s the lowest point since July 2017. It’s interesting to see them continue their downfall because the American bond market was stagnant at 2.9% on the 10 year and 2.65% on the 2 year.
Also, the dollar index fell from $95.44 to $95. Furthermore, the chance of at least 2 more hikes this year was stagnant at 73.1%. It seems their political woes are causing the problems.
Tech Stocks Crater - Conclusion
Tech stocks fell because of political woes.
However, it was also an excuse to take profits as up until today, the S&P tech sector was up 14.87% year to date.
It’s impressive to see the sector do well even without Facebook. Apple has been driving gains lately.
It’s important to remember that on September 21st the sectors will change as the telecom sector will become the Communication Services sector and some tech stocks will be added to it.