Quickening Retreat From Tech Sinks Market
(Source: wsj.com)

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(Original link: wsj.com)

244 Comments By Corrie Driebusch Corrie Driebusch The Wall Street Journal Biography Corrie Driebusch @cdriebusch [email protected] Updated Oct. 10, 2018 4:32 p.m. ET U.S. stocks suffered their biggest decline in more than seven months Wednesday, as investors accelerated their retreat from fast-growing technology stocks in favor of shares that have been overlooked.
Major indexes have started the fourth quarter on their weakest footing since the beginning of 2016, and the swift fall has some investors wondering if this is a brief stumble or an overdue reckoning for U.S. stocks after months of outperforming global markets.
Among big technology stocks, Apple Inc. AAPL -4.63% declined 4.6% on Wednesday; Amazon.com Inc. AMZN -6.15% slid 6.2% and Netflix Inc. NFLX -8.38% dropped 8.4%. Combined the three companies shed nearly $120 billion in market value.
The rotation out of tech and other growth stocks—among the most popular trades of the year—to so-called safety stocks, such as utilities companies, was sparked in part by the recent jump in government bond yields and the Federal Reserve’s bid to tighten monetary policy.
But there have been other warnings signals that made investors nervous, even if most don’t expect a recession on the horizon. Recent data has showed a slowdown in both housing and auto sales, both of which are closely watched indicators of U.S. economic health. Even more concerning: trade tensions between the U.S. and China appear to be worsening.
The result: A simultaneous selling of 2018’s biggest stock-market winners.
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Dow Drops More Than 800 Points Treasury Prices Lower as Investors Focus on Inflation Analysis: What’s Bubbling Under the Market’s Surface A Frenzy of New Market Bets Is Fading Heading into the fourth quarter, investors were piling into many of the same trades, particularly in large U.S. tech stocks, said Andrew Slimmon, senior portfolio manager with Morgan Stanley Investment Management. “If everyone is on one side of the boat and they suddenly realize this, everyone would scramble.”
The S&P 500 tumbled 3.3% Wednesday, its fifth consecutive session of declines and longest losing streak in nearly two years. The Dow Jones Industrial Average dropped 832 points, or 3.1%, to 25599, falling 4.6% from its all-time high notched Oct. 3. Both indexes registered their biggest losses on a percentage basis since Feb. 8.
All sectors in the S&P 500 slumped Wednesday, with technology stocks down nearly 5%. Other growth sectors including consumer-discretionary and communications shares posted big declines as well. The tech-heavy Nasdaq Composite dropped 4.1%, extending its declines for the month to 7.8%. The index is suffering its worst start to a fourth quarter since 2008 when it fell 21%.
Selling accelerated toward the end of the day and losses spread well beyond tech stocks; bank stocks were pummeled along with companies exposed to global trade such as Caterpillar Inc.
The recent selloff has hit highflying consumer tech companies, with Netflix and Amazon down more than 12% since the start of the fourth quarter, and Google parent Alphabet Inc. GOOGL -4.63% off nearly 10%. It’s not just big-name tech; smaller companies have also struggled, with semiconductor companies, as measured by the PHLX Semiconductor index, falling 4.5% on Wednesday.
Selling accelerated toward the end of Wednesday’s session and spread well beyond tech stocks. Photo: Richard Drew/Associated Press Possibly exacerbating the decline for tech stocks is the absence of one of their biggest buyers: the companies themselves. In the weeks leading up to reporting their corporate results, companies typically don’t repurchase their own shares due to regulations. Analysts have said record stock buybacks have underpinned the stock market’s recent gains, and some traders said the elimination of this support could be worsening the selloff.
As tech stocks stumble, investors have rushed into utilities stocks, which are generally considered safer in a volatile environment. Those shares posted a modest decline of 0.6% in the S&P 500 Wednesday, trimming their gains for the month to 2.5%.
The shift has come as the yield on the benchmark U.S. Treasury note has risen to seven-year highs. It settled at 3.221% Wednesday, up from 3.055% at the end of September.
Investors’ bet on tech companies with strong earnings growth has been a crowded one in 2018, according to Ann Larson, managing director of global quantitative research at AllianceBernstein. Her firm identifies crowded trades by looking at the top positions of active managers, which stakes they have been building over the past several quarters, and which names have a high proportion of “buy” ratings from bank analysts who cover the companies. The model also considers how well an investment has done compared with the rest of the market.
In the third quarter, Facebook Inc., FB -4.13% Amazon, Microsoft Corp. and Alphabet were among the stocks that most frequently appeared in the l...

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