Technology Takes a Beating – How Could This Affect the Market?
The technology landscape is changing especially as some of the biggest names in the industry took a big blow, while the story surrounding the new tariffs continues to unfold. Get the details to these stories and more in this latest edition of Steady Investor’s Week.
Brexit Countdown: 1 Year – Effective this week, the one-year countdown clock officially began for the U.K., as it is designated to leave the European Union on March 29, 2019.1 In what remains a contentious and murky outcome (many voters did not understand the workings of the European Union), the U.K. cannot turn back now and the overall economic impact remains to be seen – though we expect it to be a net negative on growth. But, there will be some time yet before the markets may truly price the cost of leaving, as European leaders have ultimately agreed to extend Britain’s de-facto EU membership until the end of 2020.2 It will not be until after that date that Britain must confront changed access to the single market and customs union.
Tech Takes a Beating – consumer backlash coupled with bubbling regulatory rhetoric has put technology darlings in an unfavorable spotlight and dealt a blow to some of the biggest names in the space. In the five days ending Wednesday of last week, the major technology names had taken it on the chin, so to speak:
- Facebookdown 8.34%. $42.12 billion in lost market cap.
- Amazondown 8.74%. $66.3 billion in lost market cap.
- Netflixdown 8.5%. $11.49 billion in lost market cap.
- Googledown 6.52%. $48.67 billion in lost market cap.3
Combined, the five largest U.S. tech and internet companies account for more than 14% of the S&P 500 index’s weighting,4 so an ongoing “techlash” could be impactful to index returns going forward. Investor confidence is waning in the sector and the threat of regulatory action appears to have market participants worried about how far it may go. Just taking a look at some of the statements this week from key spokespeople at technology companies makes the issue clear. Tim Cook, CEO of Apple said, “This certain situation is so dire and has become so large that probably some well-crafted regulation is necessary.” Sheryl Sandberg, COO of Facebook stated, “It’s not a question of if regulation, it’s a question of what type. We work with lawmakers all over the world.”5 The landscape is changing, now the question is, “how?”
Deal with South Korea – in a sign that tariff pressures could have a positive outcome, South Korea agreed to revise its six-year-old bilateral trade deal with the U.S. in an effort to escape President Trump’s metal tariffs. Under the new agreement, South Korea has agreed to double its import quota for American-made cars and reduce the amount of steel it sends into the United States. South Korea will also allow the U.S. to keep its 25% tariffs on pickup trucks in place for 20 more years.6
Eyeing China – the China trade story seems to take a new turn every day, with emboldened rhetoric coming from both sides. Reports this week stated that the Trump administration sent a letter to Chinese economic overseer Liu He, asking for specific requests to help slash China’s trade surplus with the U.S. In the letter, the request included seeking a tariff cut on U.S. automobiles while asking for more Chinese purchases of U.S. semiconductors and greater U.S. access to China’s financial sector. China appears willing to retaliate fully with tariffs and new restrictions of their own, and in meeting with North Korea leader Kim Jong Un also appears to be creating additional leverage in pledging alliance with the rogue nation ahead of North Korean and U.S./South Korea talks.7
With Investor confidence waning in the technology sector, many investors are wondering how far this “techlash” could go. And while U.S. stocks posted solid gains as of last Thursday, the S&P 500 is on track to finish the quarter with a loss for the first time since the third quarter of 2015.8 This has many investors anxious to see what’s to come.
While, we can’t predict what is instore for the remainder of 2018, you can try to prepare for any twist or turn that might be thrown your way. To help you do this, we are offering a free Portfolio Stress Test that may help analyze how your portfolio would perform during the next bear market. 9 Beyond simulating how your portfolio would perform during a bear market, the Portfolio Stress Test also helps address these other key investment concerns:
- Do you have the right asset allocation?
- Will you have enough money to retire on?
- Are hidden fees hurting your performance?
- Do you own underperforming funds?
Learn more about what our Portfolio Stress Test may do for you by clicking on the link below:
2 Source - Seeking Alpha
3 Source - Axios
4 Source - Wall St. Journal
5 Source - Seeking Alpha
6 Source - Seeking Alpha
7 Source - Seeking Alpha
8 Source – LA Times, http://www.latimes.com/business/la-fi-financial-markets-20180329-story.html
9 ZIM may amend or rescind the stress test offer for any reason and at ZIM’s discretion
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