The selloff in tech stocks is infecting the rest of the market

Trouble spreading.
Trouble spreading.
Image: REUTERS/Brendan McDermid
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Once a favorite of investors, FAANG stocks are being abandoned. The popular tech stocks—Facebook, Apple, Amazon, Netflix, and Google-parent company Alphabet—have lost more than $1 trillion in market value since their recent highs. Yesterday, they officially entered into a bear market, meaning they had plunged more than 20% from their high.  “Red October,” as last month’s stock rout is being dubbed, was particularly painful for tech companies, and the suffering isn’t over yet.

Now the troubles in tech are seeping into other markets. On Tuesday, energy companies were the worst performers as oil plummeted. At time of writing, futures on the US benchmark, West Texas Intermediate, were down nearly 6%. Retail companies declined too after the turmoil travelled around the world, pulling down European and Asian markets.

The losses look set to wipe out all of the 2018 gains in the S&P 500 and the tech-heavy Nasdaq Composite index.

Traders have found plenty of things to worry about. Facebook is embroiled in another scandal about how it handles scandals (paywall), Apple CEO Tim Cook has said tech regulation is inevitable, shares in chipmakers are crashing on fears that global demand for smartphones is drying up (and Chinese officials are investigating anti-competitive behavior among the largest chipmakers), the US-China trade war turned even more frosty, there are signs of economic growth slowing around the world, and investors expect company earnings to weaken.

With all this happening, tech companies still look relatively expensive and their high valuations means there could be more room for these stocks to fall, if investors don’t consider the slump a buying opportunity.

The market’s fear gauge—the Cboe volatility index that measures investor sentiment—is once again creeping up. For now, at least, it’s still less severe than the sheer panic that gripped traders at the start of the year.