Millions of ordinary investors rode Facebook on the way up, whether they fully realized it or not. Now, they’d better brace for the ride down.
The stomach-churning collapse of Facebook parent Meta Platforms Inc. on Thursday—a one-for-the-record-books $252 billion stunner—places a bright red line under the “big” in Big Tech.
Since March 23, 2020, the depths of the pandemic-induced market meltdown, five tech stocks—Microsoft Corp., Alphabet Inc., Apple Inc., Amazon.com Inc. and Meta—collectively have accounted for 27% of the S&P 500’s gain. Going back five years, that percentage is 36%.
That was then. On Thursday, Meta’s unprecedented 26% plunge single-handedly wiped out almost 200 points off the Nasdaq 100, or about a third of the benchmark index’s 4.2% loss.
To be sure, not all tech names are taking a beating. Amazon shares surged about 18% in after-hours trading on Thursday after reporting profits that topped analyst estimates.
Low-cost index funds and ETFs are great during bullish times. But financial advisers warn that some people can get lulled into a false sense of security and fail to realize just how exposed they’ve become to a small number of big stocks.
“To the extent that retail investors own it outright or through passive indices, the pain to their portfolios is going to be felt quite a bit more than for those institutional investors, or those investors who have appropriately underweighted—or not owned—that company in their portfolios,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
Meta stunned just about everyone late Wednesday with news that Facebook had lost subscribers for the first time in its history. Until now, many investors, small-timers in particular, had come to view Meta as one of the bluest of blue chips—a company with seemingly unlimited potential.
Tobi Alli in Maryland was one of those traders watching the drop in horror. He first bought Facebook in late 2019 and has been adding to his position since then.
“I sort of considered Facebook a safer stock that wouldn’t have this,” the 34-year-old said. “You expect these drop offs with meme stocks, but you don’t really expect a 25% pullback from Facebook.”
Now, after seeing more than $1,000 wiped from his portfolio, he’s asking himself some tough questions about his conviction in Meta.
Faang Exposure
Others were simply along for the ride because funds they invest in—both the actively managed and passive variety—have become so concentrated in Big Tech.
“So much market cap got tied to big tech names because the S&P and most other indices are market-cap weighted,” said Max Gokhman, chief investment officer at AlphaTrAI. “Folks that hold their 401(k)s and invest in the default options do have tremendous exposure to tech and the Faang stocks specifically.”