Big tech is getting beaten up, and FAANG stocks may also be 'most vulnerable' to a US-China trade war

The CEO’s of Apple, Microsoft and Amazon with US President Donald Trump. (Jabin Botsford / The Washington Post via Getty Images)
  • The group of five FAANG tech stocks in the US have fallen into a bear market from their October peak.
  • And Capital Economics says US tech will be among the worst performing sectors as global stocks fall sharply in 2019.
  • The sector is also “among the most vulnerable” to another escalation in the US-China trade war.

The ongoing selloff in US stocks is being led by a re-pricing of big tech — the same companies which also drove much of the index’s broader gains.

Last night’s falls saw the so-called FAANG stocks — Facebook, Amazon, Apple, Netflix and Google-parent Alphabet — slide further into a bear market (defined as a fall of more than 20%).

Since early October, only the energy sector has performed worse, due to the huge fall in oil prices:

Capital Economics

And Oliver Jones from Capital Economics thinks it will get worse for tech stocks from here.

His view is closely tied to CE’s forecast that global growth is set to slow further, with extended weakness in China.

Given the “highly-cyclical nature” of the tech sector, Jones expects earnings growth to “be hit especially hard in these circumstances”.

In addition, “the sector is probably also amongst the most vulnerable to a further escalation of the US-China trade war”, he said.

Markets remain on edge about global trade tensions, ahead of a scheduled meeting between Donald Trump and Xi Jinping at the G20 summit on November 30.

For now, US-China trade relations are plagued by uncertainty.

Reports of further negotiations between top officials ahead of the G20 gave markets hope on Friday.

But there was no love lost between the two superpowers at the APEC summit over the weekend, with both sides unable to agree to an operating framework for the region.

And on Monday, China announced it had found evidence of anti-competitive behaviour by three global computer chip manufacturers, including the US-based Micron Technology.

On the balance of it, another “ratcheting up” of trade tensions between the US and China “would come as little surprise”, Jones said.

So overall, Capital Economics maintains its view that US tech companies “will be amongst the worst performers, as stock markets around the world fall much further between now and the end of next year”.

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