Big Tech's Correction

By Alex Eule | Monday, October 4

Big Tech Swoon. Tech stocks continued their difficult stretch, with once resilient Big Tech companies leading markets lower. Facebook fell nearly 5% on the day, in the wake of public comments from a whistleblower who says the company knew far more about the negative impact of its platforms that it ever let on. She plans to testify in front of Congress tomorrow, which means the headlines will continue to get worse for Facebook. The company also dealt with a rare hours-long service outage across its platforms on Monday. Even the company's internal e-mail was affected. Instagram executive Adam Mosseri tweeted that it felt like a snow day. 

Most Facebook investors would probably disagree. The stock is now down 15% in less than a month. (Advertising issues are arguably most responsible for the selloff -- not the latest controversies.) And while Facebook has proven impervious to controversy in the past, some are wondering if this time is different. Not so far, at least according to actual shareholders. Max Cherney wrote in Barron's this weekend that investors have yet to change their long-term view of the stock. Time will tell whether the latest scandal finally pushes advertisers to rethink their Facebook campaigns. That would be a different problem for Facebook.  

All told, the tech-heavy Nasdaq Composite fell 2.1% on the day. It's now down 7.3% from its Sept. 7 record close. The broader S&P 500 was down 1.3%; it's off 5.2% from a September record. 

Aside from Facebook, among the Big Tech stocks, Apple (down 2.5%) and Amazon (down 2.9%) had the worst days. All three stocks are now in correction territory, meaning they've fallen at least 10% from their peaks. 

Rising bond yields continue to weigh on the market, though the 10-year Treasury yield has plateaued in recent days. The uncertainty of prolonged negotations over the debt ceiling might be the biggest headwing at the moment, with a U.S. debt default still possible by Oct. 18 if Congress doesn't find a way to raise or suspend the debt ceiling. 

Now the question is whether the recent selloff has already accounted for the risk. Here's Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management:

Still, we would expect any potential sell-off to be fairly modest and no more than 4% to 5% before an agreement was eventually reached. It’s also possible that some of the recent equity market volatility already reflects some concern about the debt ceiling. After all, short-term government bonds that mature just after 18 October are already trading cheaper than other short-term bonds. From that perspective, additional equity market downside from current levels could be more limited” Solita says.

DJIA: -0.94% to 34,002.92
S&P 500: -1.30% to 4,300.46
Nasdaq: -2.14% to 14,255.48

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Worst Sectors: Technology -2.3%