Since March, the broad market has largely skidded sideways, but a small handful of mega-cap tech stocks have pushed the Nasdaq Composite relentlessly higher. The performance differential was stark: From March 1, the Nasdaq Composite gained 8.5% into the high set on Thursday vs. a 2% rise for the Russell 2000 Small-Cap Index.
As measures of market breadth narrowed — including a string of unprecedented days over the past two weeks in which there was more trading volume in declining issues than advancing ones — investors were seduced by the momentum gains in tech stocks.
But on Friday, these tech stocks are suffering their largest pullback in months after Goldman Sachs issued a bearish note warning of a valuation air pocket.
Goldman Sachs coined a new term, “FAAMG” — Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Google parent Alphabet Inc (NASDAQ:GOOGL). The acronym supplants the FANG, which included Facebook, Amazon, Netflix, Inc. (NASDAQ:NFLX) and Alphabet. It then warned that these so-called FAAMG stocks have some serious valuation issues, as well as how closely their performance is correlated with so-called market “safe havens” such as bonds.
That sent tech stocks to the ground — hard. Here’s a look at five major tech stocks that really took it on the chin Friday, and where they might head next.
Tech Stocks That Are Getting Hit Hard: Facebook Inc (FB)
Facebook Inc (NASDAQ:FB) shares finished well more than 3% lower Friday, falling below their 20-day moving average for the first time since May and closing in on their 50-day moving average, which hasn’t been crossed to the downside since November.
Facebook had gained 36% into the high set this morning from its late December low.
FB was in the news recently for launching its Camera Effects Platform, which looks to make every smartphone camera enabled for augmented reality uses. But that latest fundamental driver is being completely ignored amid Friday’s panic.
Facebook will next report results on Aug. 2 after the close. Analysts are looking for earnings of $1.13 per share on revenues of $9 billion.
Tech Stocks That Are Getting Hit Hard: Apple Inc. (AAPL)
Apple Inc. (NASDAQ:AAPL) shares sank more than 4% on Friday, good for its largest one-day loss since April 2016. The 50-day moving average is under siege and hasn’t been broken since early November.
Apple stock gained more than 35% into the high set back in May, but has ambled sideways amid several concersns. There’s smartphone saturation, and potentially over-hyped expectations for the upcoming iPhone 8 launch later this year. And don’t forget a very tepid and underwhelming response to the launch of the Homepod smart speaker system — playing catch-up to Amazon.com, Inc.’s (NASDAQ:AMZN) Echo.
Apple will next report results on Aug 1. after the close. Analysts are looking for earnings of $1.57 per share on revenues of $44.5 billion. Recently weak results out of Asia and a slowdown in iPhone sales ahead of the iPhone 8 launch will be in focus.
Tech Stocks That Are Getting Hit Hard: Netflix, Inc. (NFLX)
Netflix, Inc. (NASDAQ:NFLX) shares also posted their worst day in months, off 5% on Friday — the largest one-day declines since November.
NFLX shares traded lower in the wake of previous results on April 18, with investors upset about weak Q2 guidance and underwhelming subscriber growth numbers. However, Netflix managed to get past that, and continued its persistent uptrend since July 2016 — up more than 94% into the high set on Thursday.
Watch for a possible correction down to the January-April trading range near $140, which would be worth an 11% decline in NFLX from here.
Netflix will next report results on July 17 after the close, with analysts looking for earnings of 16 cents per share on revenues of $2.76 billion.
Tech Stocks That Are Getting Hit Hard: Alphabet Inc (GOOGL)
Alphabet Inc (NASDAQ:GOOGL) shares are down 3.7% in trading on Friday, which like Apple represents its worst one-day loss since April 2016.
GOOGL also kissed $1,000 per share goodbye.
The company reported solid results on April 27, with earnings of $7.73 per share beating estimates by 35 cents. But valuations look extended here, with a price-to-earnings multiple of around 25x.
Watch for a possible test of the 200-day moving average, last touched back in December, which would be worth a decline of around 13% from here.
Alphabet will next report results on July 27 after the close. Analysts are looking for earnings of $8.2 per share of GOOGL on revenues of $20.6 billion.
Tech Stocks That Are Getting Hit Hard: Microsoft Corporation (MSFT)
Microsoft Corporation (NASDAQ:MSFT) shares are down about 2.5% on Friday, wiping away weeks of gains in a single stroke and putting the 50-day moving average — which hasn’t been crossed since November — back in play. MSFT did manage something of a bounce near the end of trading, but this still is one of the worst selloffs in Microsoft since June 2016.
This was also around the time the 200-day moving average was last messed with, which would be worth an 11%-plus decline from here.
Microsoft reported in-line revenues on April 27 with earnings slightly ahead of estimates. Its next results come July 27 after the market closes. Analysts are looking for earnings of 71 cents per share of MSFT on revenues of $24.5 billion.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers.
