U.S. equities were under growing pressure on Thursday, with weakness in the popular big-tech area, including FAANG stocks, pushing the Nasdaq Composite back below the 8,000 level to set up another retest of the index’s 50-day moving average.
There are a number of reasons for the pullback, including fears of increased regulatory scrutiny with President Donald Trump and his Department of Justice both looking to take action. Attorney General Jeff Sessions is setting up a technology competition meeting with state attorneys general to look into the issue of whether social-media platforms are stifling free speech and startups.
This comes in the wake of ongoing criticisms over censorship and foreign meddling.
The result is a rare bout of selling for an area of the market that investors have grown to expect unencumbered rallies from. According to Bank of America Merrill Lynch, some $22 billion has flowed into the sector for the year-to-date. And both Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) have recently crossed the $1 trillion market cap threshold.
But with equities prices suffering pretty much everywhere else — from emerging markets to developed economies like Germany — and other U.S. equity sectors lagging behind, this group of mega-cap U.S. tech stocks can no longer stand alone.
Here’s what’s at stake for the five FAANG names:
FAANG Stocks: Facebook (FB)
Facebook (NASDAQ:FB) shares dropped close to 3% on Thursday, capping a 26% decline from its late July high to near a retest of its March/April lows. Shares have been slammed by tepid quarterly results and weak guidance that pointed to a shift away from a focus on profit margins to address issues like content quality and privacy. Investors didn’t want to hear that, especially after the Cambridge Analytica scandal earlier in the year. Add a loss of interest by younger users in the main Facebook platform and worries about yesterday’s hearings on Capitol Hill, and further downside looks likely.
The company will next report results on Oct. 24 after the bell. Analysts are looking for earnings of $1.48 per share on revenues of $13.8 billion. When the company last reported on July 25, earnings of $1.74 beat estimates by four cents on a 41.9% rise in revenues.
FAANG Stocks: Apple (AAPL)
The first $1 trillion U.S. stock was suffering a drop out of a week-long consolidation range on Thursday, setting up a test of the 50-day moving average that held throughout June and July. Shares rallied roughly 20% from their late July levels on growing excitement over the coming iPhone refresh later this year (iPhone X form factor top to bottom). But worries are growing on possible exposure to the worsening U.S.-China trade situation, including critical supply chain linkages and end market linkages.
The company will next report results on Oct. 30 after the close. Analysts are looking for earnings of $2.76 per share on revenues of $61.1 billion. When the company last reported on July 31, earnings of $2.34 beat estimates by 16 cents on a 17.3% rise in revenues.
FAANG Stocks: Amazon (AMZN)
Just days after crossing the $1 trillion market capitalization threshold, AMZN shares suffered their worst selloff since July on Thursday losing the $2,000-a-share level in the process. No specific catalyst is in play, just a wave of sympathetic selling and profit taking. Valuations look extended, with RBC’s Mark Mahaney recently noted a 40x free-cash-flow multiple.
The company will next report results on Oct. 25 after the close. Analysts are looking for earnings of $3.05 per share on revenues of $57.1 billion. When the company last reported on July 26, earnings of $5.07 beat estimates by $2.54 on a 39.3% rise in revenues.
FAANG Stocks: Netflix (NFLX)
Netflix (NASDAQ:NFLX) shares are rolling over after a failed attempt to crawl back above their 50-day moving average. A test of critical support near the August low and the 200-day moving average — figure, near $320 — looks likely now as investors worry about the nasty-looking double-top near $420 set back in June and July, as well as rising competitive pressures and rising content production costs.
The company will next report results on Oct. 15 after the close. Analysts are looking for earnings of 68 cents per share on revenues of $4 billion. When the company last reported on July 16, earnings of 85 cents per share beat estimates by six cents on a 40.3% rise in revenues.
FAANG Stocks: Alphabet (GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) shares got hit hard, dropping away from a triple-top resistance pattern near $1,275 to lose the 50-day moving average and close in on the 200-day average. The $1,100 level also corresponds with the long multiyear uptrend supported by the 50-week moving average going back to 2015. Google parent Alphabet was among the companies called to testify in front of Congress regarding election interference, but elected to “empty chair” the hearing by sending its top lawyer to provide written testimony.
The company will next report results on Oct. 22 after the close. Analysts are looking for earnings of $10.69 per share on revenues of $34 billion. When the company last reported on July 23, earnings of $11.75 beat estimates by $2.05 on a 25.6% rise in revenues.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
