The most-mega of megacaps bore the brunt of a tech selloff Thursday as weaker demand for Apple Inc.’s iPhone 8 models revived concern over profit prospects.
The Nasdaq 100 Index, which only recently recovered from a summer swoon, fell 0.6 percent at 11 a.m. in New York, on course for its biggest retreat in almost a month. Apple slumped 2.5 percent and the FANG bloc of Facebook Inc., Amazon.com, Netflix and Google parent Alphabet Inc. fell 1.3 percent.
Anxiety is returning to a group whose outsize returns in 2017 have repeatedly turned it into a source of cash as money rotated into financial and small-cap stocks. While their trouble can be framed as a reallocation, a less-discussed aspect is that sentiment toward their profits is sagging.
To be sure, their earnings aren’t collapsing, and would be the envy of any other industry. With income forecast to expand 18 percent an average this year, the expected growth or the five biggest tech firms is almost twice that of the full S&P 500. The problem is, analysts are cutting their estimates, calling into question their stock valuations. At an average 74 times earnings, the multiple is three times that of the S&P 500.
“There has to be a bit of reality that they just can’t keep running further and further,” Bill Schultz, who oversees $1.2 billion as chief investment officer of McQueen, Ball & Associates Inc., said by phone. “We’ve built in a very good scenario for them, so if it’s just plain good, they’re being punished.”
Over the past two months, analysts have lowered earnings estimates on the top five by an average 1.4 percent, data compiled by Bloomberg show. That’s in contrast with broad upward revisions in the S&P 500 Index.
People trying to explain tech’s weakness have usually looked elsewhere, like rising Treasury yields and the dollar, saying they prompted investors to move money to laggards such as energy and banks. And while the FAAMG group has clearly been caught in a rotation, not all of its problems are at the portfolio level.
The group’s stagnation since July has coincided with a slew of negative news, from a $2.7 billion fine leveled by the European Union against Google to a government investigation into Facebook’s involvement with Russia during last year’s election. There is also President Donald Trump’s attack on Amazon for hurting other retailers.
The report on Apple’s iPhone demand is the latest weighing on the market. The company has cut orders linked to iPhone 8 models by more than 50 percent over the rest of the year, the Taipei-based Economic Daily News reported, citing people it did not identify. The news also sparked a wave of selloffs among Apple suppliers.
This article was provided by Bloomberg News.