Four Charts That Show the Tech-Stock Bear Hug May Not Last Long
More than 84 percent of stocks in the S&P 500 Information Technology Index are trading above 50-day moving average
(Bloomberg) -- A double-blast of bad news may have sent technology stocks tumbling Monday, but it wasn’t enough to silence the bulls.
Facebook Inc.’s 6.8 percent plunge, triggered by reports that a company linked to President Donald Trump’s election campaign may have collected data from user profiles without permission, led the Nasdaq 100 Index to its fifth straight decline, the longest losing streak since the November 2016 vote. The news stoked concern that the social media giant will face increased regulatory scrutiny in Washington.
A draft proposal by the European Commission that says companies such as Alphabet Inc. or Twitter Inc. could face a 3 percent tax on their gross revenue based on where their users are located further soured sentiment. And the Trump administration plans to impose tariffs worth as much as $60 billion on Chinese products as early as this week, according to people familiar with the matter.
Monday’s gut punch came less than a week after the Nasdaq 100 peaked at a fresh record following a 13 percent rebound from last month’s market correction. Following are four charts that might take some of the sting out:
Revenue Growth
While tech stocks are trading lower for now, they’re likely to get a boost if companies convince investors that growth remains on track when first-quarter results start rolling in next month. Industry earnings probably grew 23 percent during the period, compared 17 percent growth for the broader S&P 500, according to analysts polled by Bloomberg.
A vibrant pace of revenue growth is one of the main reasons to stay bullish on the sector, according to Jonathan Golub, chief equities strategist at Credit Suisse Group AG. He expects tech stocks to post a 10 percent revenue growth in 2018, compared with 6.7 percent for the S&P 500. Supporting the rally will be strong fundamentals and attractive price-to-cash flow, he said.
“The market goes up and down,” Golub said by phone. “The real question is, do we think the macro backdrop is going to be meaningfully disrupted by concerns from Washington? I don’t think so. Is the concern over Facebook serious enough to change our view on the sector? It’s not.”
Facebook No Problem for Broader Sector
Facebook’s slump on Monday, triggered by a report that political advertising firm Cambridge Analytica retained information on millions of Facebook users without their consent, was the stock’s biggest one-day decline in four years. The shares were down another 1 percent in pre-market trading on Tuesday.
Matt Maley, chief strategist at Miller Tabak, points out that Facebook has already been under pressure from the lawmakers in the U.S. and Europe, and the latest development doesn’t bode poorly for the broader tech sector.
“Facebook has been under scrutiny for months, and investors got used to that,” Maley said. “If we see Netflix rolling over or Amazon rolling over, that would be a much bigger deal.”
Facebook may widen losses short-term, depending on what measures the government might take, according to Maley. In this case, the sector may be buoyed by stocks such as chipmakers Intel Corp. or Micron Technology Corp., which would not be directly affected by such a move.
Above Support Level
Despite recent losses, the tech sector doesn’t look too weak from a technical perspective. More than 84 percent of stocks in the S&P 500 Information Technology Index are trading above their 50-day moving average, near the highest level since before the February selloff. This compares with about 51 percent for the S&P 500.
Bears Leave Key Tech ETF
Last but not least, take a look at what short-sellers are doing.
The number of shares borrowed to sell short the PowerShares QQQ Trust Series 1 exchange-traded fund short fell to 7 million last week from 22 million in late February, data compiled by IHS Markit show. This comes as investors poured $3.3 billion into the ETF last week, the most since the dot-com bubble.
To contact the reporter on this story: Elena Popina in New York at epopina@bloomberg.net.
To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Richard Richtmyer, Morwenna Coniam
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