The US technology sector was rocked on Monday by claims that Facebook profile data had been misused, sending shares of industry leaders tumbling and raising fears about the stability of a key pillar of the bull market in US equities.
Technology companies, particularly the so-called “Fang” stocks including Facebook, Amazon, Apple, Netflix and Google-parent Alphabet, have led the market higher for the past two years on their growth prospects.
However, reports that Cambridge Analytica, a data analysis firm employed by the presidential campaign of Donald Trump, mined the personal data of 50m Facebook users raised the spectre of a regulatory clampdown on the sector. EU lawmakers said they would investigate and the UK’s data protection authority and the Massachusetts attorney-general have already opened investigations.
Facebook fell 6.8 per cent, its biggest loss in four years, while Alphabet lost more than 3 per cent and Amazon, Netflix and Apple dropped more than 1.5 per cent. The tech sector, which accounts for about a quarter of the benchmark S&P 500, dragged the index to a 1.4 per cent decline.
“[Facebook] is one of the Fang darlings and the fear is that the government might try to do something to regulate Facebook, or that users become worried that Facebook is misusing their data, either of which could cause a slowdown in growth,” said Ari Shrage, chief executive of Aliya Capital, which advises funds on tech investments. “If regulation spreads to other technology companies it could negatively impact their fundamentals.”
Jon Mackay, investment strategist at Schroders, added that “trade news lingering in the background” also played a role in the day’s declines. While based in the US, a company like Apple does its manufacturing in China.
“If we move forward with a very strict interpretation around what Trump has said around steel and aluminium tariffs and targeting China, tech will probably get caught up in that,” he said, adding that the sector faces at least short-term headwinds “until we get more clarity on trade tariffs and the regulatory fallout, not just for Facebook”.
Other investors saw a buying opportunity. “We will see a bounce from here because there is so much positive going on,” said Tom Plumb, chief investment officer at Plumb Funds, who agreed though that trade relations with China were a concern.
Earnings per share for the companies in the information technology sector of the S&P 500 grew by 17 per cent in 2017 over the previous year and are expected to rise 16 per cent in 2018, according to FactSet.
“I still expect the tech stocks to be the leaders because they are the leaders of economic growth,” Mr Plumb said.
Even with the day’s declines, the information technology sector of the S&P 500 is still the year’s top performer with a gain of 7.8 per cent to date, following a 36 per cent rise in 2017. Such sharp gains prompted concerns about high prices and a so-called crowded trade among investors, leaving the sector vulnerable to a fall.
Support for this article was provided by ft