Shares in the five largest cloud companies fell in unison on September 25, and the whole market trembled as a result. Amazon.com Inc. (NASDAQ:AMZN) led the way down, dropping 1.6%, or $7.38 billion. Alphabet Inc. (NASDAQ:GOOGL) lost about $5 billion, including losses in GOOG. Apple Inc. (NASDAQ:AAPL) lost just $1.34 per share, but that was $7 billion. The Microsoft Corp. (NASDAQ:MSFT) loss of just $1.15 per share meant a loss of $8.8 billion.
The fall of Facebook Inc. (NASDAQ:FB) was the most spectacular of them all. The social network lost 4.5% of its market cap in a single day of trading $7.67 per share, or over $18 billion.
Taken together, the loss of nearly $50 billion in 5 stocks may not have not looked like much, the average NASDAQ issue falling less than 1%, but it’s enough to provide tech traders with a massive hangover. As trading opened September 26, all five were due to bounce back, but regaining less than one-third of the previous day’s losses.
Is This The End?
The companies I have called the “Cloud Czars” have been leading the way higher throughout this decade, transforming society as no other force, attaining a total market cap near $3 trillion. A bear market in these five issues alone would shave $600 billion off the NASDAQ’s total valuation, nearly 10% of the total.
Of course, they were not alone. Chip designer NVIDIA Corp. (NASDAQ:NVDA) lost $4.8 billion on the day, or 4.47% of its total valuation. What went up the most earlier this year fell the hardest. Overall, technology shares fell 1.15%.
Some traders will say that this was just an overdue rotation, with oil topping $52 per barrel after trading for as little as $43 per barrel in July. But if the trend continues it is ominous for the larger economy, because oil is inflationary, while technology is deflationary. The U.S. economy in 2017 is driven by Silicon Valley, not Houston.
Personally I have been assuming a bear market, and a recession, for some time, and had cut my shares in tech sharply, getting out of Apple and Alphabet entirely, and cutting my Amazon position in half, while buying more foreign stocks including Alibaba Group Holding Ltd. (NASDAQ:BABA), down 4.8% to $171.40, a loss of $21 billion. But my personal portfolio still took a sharp hit and the question becomes, is this a buying opportunity?
Time to Buy Amazon?
So far, bearish analysts are talking only about “sector rotation,” noting that oil and small caps are holding up. Most believe the tech rally was simply overdone, and the correction is thus overdue.
This drop looks different and more ominous for the economy. It’s more broad-based than any technology sell-off, and these usually preview a sharp decline in the overall market.
If tech is really heading into bear territory, whether because of the Fed rolling bonds off its balance sheet, or Administration policies that have been critical of tech leaders, the entire U.S. economy is now far more dependent on technology than it was, even at the peak of the dot-com bubble in 2000.
I don’t try to catch a falling knife, meaning I don’t rush in and buy something that is falling fast. Early indications are that tech stocks will bounce back, a little. But I have already battened down my hatches, with nearly one-third of my retirement account now in cash.
The question is, have you?
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in FB, MSFT, BABA and AMZN.
