Tech stocks got clobbered, and the worst may not be over

What goes up must come down, and investors are learning that the hard way. Big Tech stocks that soared over ...

Posted: Oct 11, 2018 3:03 PM
Updated: Oct 11, 2018 3:03 PM

What goes up must come down, and investors are learning that the hard way. Big Tech stocks that soared over the past year are tumbling this month.

Netflix (NFLX), for example, plunged more than 8% Wednesday. Shares of Amazon (AMZN) have plummeted almost 10% in the past five days.

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They're not alone. Facebook (FB), Apple (AAPL), Twitter (TWTR) and Microsoft (MSFT) have all dropped about 4% in the past week. Google owner Alphabet (GOOGL) has fallen by 7%.

The New York Stock Exchange's FANG+ index, which includes many of these stocks as well as Tesla (TSLA), Nvidia (NVDA) and China's Alibaba (BABA) and Baidu (BIDU), has dropped 8% this week.

What changed in the past week? Nothing much, really. Most of these companies are about to report their latest quarterly earnings -- and they should be fairly strong. And most of these companies are somewhat immune from the growing trade war with China (with Apple being the notable exception).

But these titans of tech are vulnerable to the recent spike in long-term bond yields and signs from the Federal Reserve that it plans to keep hiking short-term rates throughout 2019. That could slow the economy and start to hurt profit growth of high-flying techs.

That may be one of the reasons why investors are starting to rotate out of tech and into other parts of the market that have lagged lately, including banks, utilities and drugmakers -- which many consider to be safer stocks because of their big dividends.

Tech stocks rebounded a bit Thursday, but they could still be vulnerable if market volatility continues, particularly if interest rates keep rising.

Even after the big drops of the past few days, most of the FANG stocks, Microsoft, Twitter and many other big techs are still sitting on pretty significant gains this year.

Netlflix's shares have soared 70% while Amazon is up more than 50%. Microsoft and Apple have each gained about 25%.

Chip company Advanced Micro Devices (AMD) has skyrocketed nearly 150%, making it the top performer in the S&P 500 this year.

Software companies Adobe (ADBE) and Salesforce (CRM) are up almost 40%. Cybersecurity firm Fortinet (FTNT) has gained an astonishing 80%.

Investing fads come and go. And if rates keep climbing, it could be the case that techs -- which have been steering the broader market for years -- may finally need to take a back seat to other sectors that will do better as bond yields rise.

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