After leading market, tech stocks tumble for 2nd day

Investors say Apple, other titans might be starting to ‘plateau’

Technology stocks, which had been the market’s best performers this year, had a second consecutive day of losses Monday.

The sharp, sudden decline has caught the attention of Wall Street, as stocks such as Facebook, Apple, Amazon, Netflix and Google parent Alphabet had been leading the U.S. stock market higher. These so-called “FAANG” stocks are among the most widely owned by professional investors. Fund managers have been doubling down on tech and now have a record amount of cash in the sector — which Wall Street dubs an “overweight” — relative to other sectors, Bank of America Merrill Lynch data show.

So any signs of weakness in these popular investments raises red flags. Wall Street pros, however, say it’s premature to say the recent “tech wreck” marks a complete about-face for the tech sector’s fortunes.

Professional investors may be starting to worry that this latest group of tech titans may be starting to “plateau,” says tech fund manager Kevin Landis, chief investment officer at Firsthand Funds. “Investors are having pangs of doubt.”

But success “stories” like the FAANG stocks, he stresses, do not “fall apart overnight.” The Apples and Facebooks of the world didn’t become the next Kodak or Xerox “over the weekend,” Landis says, referring to old tech stalwarts that were eventually overtaken by younger tech disrupters.

That doesn’t mean these hot stocks — many were up more than 30% for the year — won’t suffer more losses before stabilizing, says Ed Campbell, managing director for QMA, a business unit of Prudential. “I wouldn’t say the run is over, but the shakeout is just starting and could cause a 10% drop in the tech sector. You could see 15% drops in FAANG names,” he says.

Leading the decline Monday was Apple, which suffered a ratings downgrade from Mizuho Securities, its second such downgrade in the past week.

Apple shares, which suffered their biggest loss of the year Friday when they tumbled nearly 4%, fell another 2.5% Monday. Monday’s drop follows Mizuho cutting its rating on Apple to “neutral” from “buy.”

The two-day tech sell-off, however, follows big gains. The techpacked Nasdaq composite, for example, had been up 17.4% before Friday’s sell-off, which was double the return of the broad Standard & Poor’s 500 stock index. And the “FAANG” stocks were up nearly 30% through the end of May, compared with a gain of 8% for the S&P 500, BofA data show. All the FAANG stocks fell 3% or more Friday, and they all finished lower Monday, with Netflix the biggest loser with a drop of 4.2%.

The decline has raised questions as to whether tech’s big run is over. “It felt like someone took a pin and popped the balloon,” said Gary Kaltbaum, president of Kaltbaum Capital Management, referring to Friday’s downdraft.

One good sign, at least so far, is the pain in the tech sector hasn’t really spread to other areas of the market. Friday, for example, the blue-chip Dow Jones industrial average rallied to a new closing high as did the small-company Russell 2000 stock index.

Similarly, on Monday, the Nasdaq had pared its steep early loss of 1.6% to close down 0.5%, while the Dow and S&P 500 closed modestly lower.