World’s largest company loses almost 4% in value as traders rethink rally
The selling, which crescendoed about an hour before the close of trading in New York, was particularly acute in the biggest names in the sector.
Apple closed down 3.9 per cent at $148.98, while Amazon briefly fell as much as 8.2 per cent before recovering to close down 3.2 per cent on the day at $978.31 — dropping below the milestone of $1,000 each for the first time since hitting that peak.
“Everybody has been hyperventilating over the tech run and now it is selling off,” said Adam Abelson, a portfolio manager at Stralem & Co.
The turnround in tech shares came after a research report from Goldman Sachs said that the huge run-up in several big sector stocks this year was “cause for a pause”. There was a “valuation air pocket” underneath many popular stocks, it said.
The rise of what Goldman has dubbed the FAAMGs — Facebook, Amazon, Apple, Microsoft, and Google’s parent company Alphabet — had “created positioning extremes, factor crowding and difficult-to-decipher risk narratives”, the report warned.
Investors have been snapping up tech stocks in preference to industrial companies this year as enthusiasm about Donald Trump being able to enact his economy-boosting agenda has fizzled. Tech stocks can be popular when the outlook is uncertain because they offer the hope of growth regardless of the underlying economy.
Just five big tech stocks, including Apple, had contributed about 30 per cent of the S&P 500’s year-to-date gains before Friday’s sell-off.
Robert Bernstone, a managing director at Credit Suisse, said profit-taking snowballed on Friday afternoon “as a lot of these large-cap tech names have been so solid that they were arguably overdue for a bit of a pullback. One or two names saw some selling pressure and that turned the whole sector around.”
Overall, the Nasdaq Composite fell 1.8 per cent for its third largest one-day loss this year. Nvidia, one of this year’s high flyers, saw its share price drop 6.5 per cent, and Netflix fell 4.7 per cent.
Trading activity on one of the largest and oldest exchange traded funds, which tracks the Nasdaq 100 index, which includes many of the largest tech companies, surged far above the usual level.
The one-day trading volume in the PowerShares QQQ Trust, an exchange-traded fund which tracks the Nasdaq 100 index, was 109.5m shares, several times the daily average for the past year of 22.2m, according to Bloomberg data.
As the tech sector slid, financial companies, which have suffered sharemarket underperformance so far in 2017, rallied. The sector rose nearly 2 per cent on Friday.
Some market participants pointed to Thursday’s vote by the House of Representatives in favour of the Financial Choice Act, as another catalyst for Friday’s trading. The vote advances the legislation, which aims to undo Obama-era regulations enacted in response to the 2008 financial crisis, to the Senate for that chamber to consider.
Michael Underhill, chief investment officer at Capital Innovations, viewed the rotation and the speed with which momentum picked up during the session as evidence of algorithmic trading.
“A rotation trade has unfolded, leaving some of the year’s worst-performing sectors with big gains and the year’s top-performing group — technology — with a large loss,” he said.
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