Big Tech and Momentum Stocks Fall Victim to Coronavirus Fears
25 February 2020 - 7:45AM
Dow Jones News
By Steven Russolillo
The stock market's biggest darlings are no longer immune to the
coronavirus.
The largest tech companies and some of the most popular momentum
plays fell sharply Monday, declining more than the broader market's
sharp selloff and indicating a possible shift in investor
mind-set.
The emergence of fresh coronavirus outbreaks in several
countries outside China was the fresh catalyst sparking the
widebased selloff, even pulling down what previously had been
market leaders.
"It's been a fast exit out of the momentum-based trades," said
Robert Pavlik, chief investment strategist at SlateStone Wealth
LLC, an investment firm in New York with $1.1 billion under
management.
Tech giants Apple Inc. and Microsoft Corp. dropped sharply.
Popular momentum stocks among individual investors, including auto
maker Tesla Inc. and British business mogul Richard Branson's
Virgin Galactic Holdings Inc. fell even more. Semiconductor
companies such as Qualcomm Corp. and Nvidia Inc. also declined
sharply.
Those stocks had marched higher for weeks, with investors often
overlooking the spreading coronavirus and its impact on the global
economy. Even Apple's warning last week that the coronavirus might
cut into sales didn't hurt the stock price that much. And on prior
big down days for the overall market, many of those individual
stocks had emerged relatively unscathed whereas industrials, energy
and materials had been among the market's biggest losers.
Investors had previously bet that giant tech stocks would march
on regardless of the coronavirus, putting their faith in companies
that promise rapidly increasing profits and revenue. And even
though some investors had warned of signs of overexuberance, many
of the market's biggest momentum names had managed to hold on to
heady gains.
But the narrative shifted Monday. And as it has become
increasingly clear that the coronavirus outbreak will disrupt
global supply chains more than originally anticipated, investors
elected to sell what previously had been some of the market's
biggest winners.
"I don't want to be too early to jump back in," Mr. Pavlik said.
Referring to the spreading of the coronavirus to more countries, he
said: "this could get out of hand pretty quickly and a lot of
clients are very worried about it."
He said he recently trimmed positions in Apple and Microsoft. He
also increased cash positions to as much as 15% in client
portfolios, more than usual.
The biggest and most popular tech stocks, including Apple,
Microsoft, and Amazon.com Inc. and Google parent Alphabet Inc.
watched Monday's selloff take a bite out of their year-to-date
gains. Facebook Inc. turned negative for the year.
The NYSE Fang+ Index, which tracks 10 global tech heavyweights,
dropped 5.5%, on pace for its third worst drop since its inception
in 2017.
Tesla, which had more than doubled this year, fell more than 5%.
Virgin Galactic, the space-tourism company which went public in
October, fell as much as 14% before turning positive in afternoon
trading. It had nearly tripled this year through Friday's
close.
"The most vulnerable parts of the markets remain those that have
risen the most," said Paul Nolte, a portfolio manager at Kingsview
Investment Management in Chicago.
And it wasn't just U.S. companies that were hit hard.
U.S.-listed Chinese tech giants like Alibaba Group Holding Ltd. and
Baidu Inc. fell sharply and are now negative for the year. Shares
of Chinese companies listed in the U.S. and many American companies
with heavy sales exposure to China have struggled for much of the
year.
The declines suggest some investors and analysts are starting to
question how much impact central banks in China, the U.S. and
others can have in supporting the global economy if the coronavirus
outbreak worsens.
"There appears to be far too much confidence in policy makers'
ability to stem a crisis," Peter Atwater, a research analyst and
adjunct professor at William & Mary, wrote in his newsletter on
Friday, before the selloff. He has warned repeatedly about
overexuberance in the market.
"This is a mania that is going to end like every other mania.
Very, very badly," he said.
Write to Steven Russolillo at steven.russolillo@wsj.com
(END) Dow Jones Newswires
February 24, 2020 15:30 ET (20:30 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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