Big Tech Takes a Hit as Antitrust Zeal Spreads to the U.S.

(Bloomberg Businessweek) -- Washington—and specifically its antitrust power—was back on investors’ radar with a vengeance this week, erasing in a single trading day almost $140 billion in the market value of the big four tech companies: Amazon, Apple, Facebook, and Google parent Alphabet. Combined with the uncertainty caused by spreading trade tensions— Mexico and India were added to a list of targets that remains dominated by China—and the need to watch for presidential tweets at all hours, the reports of potential antitrust investigations into the four companies served to remind investors just how much the game has changed under the current administration.

“This is sort of a gut punch to investors at the exact time that you did not need it, given the China worries,” Dan Ives, an equity analyst at Wedbush Securities, told Bloomberg TV. “Part of the problem that I think Apple is facing, as well as other tech players, is what’s the ballgame and what are the rules? Is this a baseball game where we’re in the third or the first? I think that’s the frustration.”

The trouble in the markets began when the first reports broke that the U.S. Department of Justice was opening an antitrust investigation of Google, while the Federal Trade Commission would probe Amazon.com Inc. and Facebook Inc. As Monday progressed, Reuters reported that Apple Inc. may also be scrutinized by the Justice Department, and the House Judiciary Committee said it’s planning antitrust hearings to investigate competition in the technology industry. The stocks were down 3% to 10% at their lows of the day.

The shares made up much of their losses the following day, helped along by some soothing words from Federal Reserve Chairman Jerome Powell, who signaled the central bank would consider cutting interest rates if the economy needed help. And the recovery made sense even without the Fed chair’s words. As analysts pointed out, antitrust investigations can take years to conclude. And just dominating your market isn’t against the law. “Obtaining a monopoly by superior products, innovation, or business acumen is legal; however, the same result achieved by exclusionary or predatory acts may raise antitrust concerns,” reads the FTC’s Guide to Antitrust Laws.

U.S. regulators have in the past been mostly hands-off when it comes to tech, a stark contrast to Europe, where regulators have been aggressively pursuing antitrust cases. That appears to be changing. Law enforcers are on the verge of opening broad investigations that could yield significant changes to how the companies do business and potentially lead to a breakup of a company. “It has been building to a fever pitch over the last six to 12 months,” says Michael Carrier, a law professor at Rutgers University. “There’s general unease these companies have too much power, and it really crosses the political aisle.”

While Europe slapped Google with almost $10 billion in fines as a result of antitrust probes, remedies in the U.S. in such cases often center on making narrow changes to a company’s conduct rather than imposing huge fines, according to Bloomberg Intelligence. Then there’s all the cash that Big Tech has spread around Washington. Greg Valliere, chief U.S. policy strategist for AGF Investments, says money spent on lobbyists and political contributions will limit the repercussions to minor wrist slaps and some fines.

Yet until that resolution comes, there will be plenty of opportunities for negative headlines. Big Tech makes a handy punching bag for politicians looking to garner votes going into the 2020 elections. Already, Massachusetts Senator Elizabeth Warren has made breaking up big tech companies an element of her campaign for the Democratic presidential nomination. “I think investors have just been too complacent about the policy risks to this part of the market,” says Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets. “At least up until this week.”

In a market so focused on growth stocks, any weakness of these heavyweights and the lack of a clear leading sector may make it harder for the market to keep climbing. That’s particularly true while the administration’s trade policies continue to create uncertainty. The dent to business confidence from trade tensions could linger, and quantifying the drag on the economy is especially difficult, J.P. Morgan economist Michael Feroli wrote in a client note, the title of which flicked at Trump’s MAGA acronym: “Making Abysmal Growth Attainable.”

Trade tensions mean that corporate managements could freeze investment plans and decision-makers will factor in a greater risk of policy uncertainty when dealing with the U.S., according to Kim Catechis, who manages emerging-markets equity funds at Martin Currie Investment Management in Edinburgh. “The world has spent the last 75 years working on very clear rules-based commerce, and that meant we ended up with supply chains in all industries that are defined down to the last minute of delivery,” he says. Because of the shake-up in global trade, he adds, “I don’t think company managements ever again will go back to what we had.”—With David Mclaughlin

To contact the editor responsible for this story: Eric Gelman at egelman3@bloomberg.net, Madeleine Lim

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