Yesterday, the stock market got into the “Way Back” machine, back to a time when companies that were too big we deemed a threat.
Too big for their britches?
Technology giants hammered
The Sherman Antitrust Act wasn’t mentioned, but I felt it among an assortment of speculation as Facebook shares began to crumble and other tech names also came down hard.
Until now, Silicon Valley had that cool factor that allowed tech titans to escape the scrutiny and the scorn of the so-called robber barons of yesteryear.
However, reports that Mark Zuckerberg has agreed to face congressional questioning calls to mind what would ultimately happen beyond the threat of increased regulations and a monumental fine. More than likely, Larry Page and Jack Dorsey will have to appear as well.
The most recent example is how hip Silicon Valley fraudster Elizabeth Holmes got a slap on the wrist, while Wall Street fraudster Martin Shkreli got hard time.
Perhaps the venue of cool and mantra about not doing harm no longer provides a cloak exclusion. Suddenly, big tech could be in big trouble. The biggest market caps in the market belong to ubiquitous tech names that haven’t been bashful about their boundless ambitions:
- Apple: $857 billion
- Amazon: $732 billion
- Google (Alphabet): $705 billion
- Microsoft: $697 billion
- Facebook: $441 billion
Keep in mind that the use of the Sherman Antitrust Act has been used by both parties with William Taft suing 75 companies and Teddy Roosevelt going after 45 companies.
More recently, Microsoft had to fight off claims of monopoly for its x86 architecture before settling with the Department of Justice in 2001. The company still controls 95% of desktop operating systems, but it’s not seen as a problem anymore.
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The eye of yesterday’s storm, Facebook wasn’t even in existence until 2004, and while it’s not the largest market cap name on the list, its dominance in social media and online ad spending makes it an enticing target.
Google/Alphabet controls 89% of search engines and has a dominant position in online ad spending and mobile phone operating system.
To be clear, I don’t think there will be any antitrade action with these names, and in many ways, they are the competitive hedge against each other that regulators would ostensibly be looking for if they took action to break them up.
These names were ripe for profit-selling, including Twitter as it rallied 100% and got caught in the net of a famous short seller, which says it’s potentially the biggest target if there are more regulations in social media.
Tech in Trouble
Computer chip names were hit harder than social media names, making the S&P technology sector the biggest loser of the session on Tuesday. Although the news of Nvidia (NVDA) halting its driverless car test didn’t stop the stock from opening higher, its shares took the largest drubbing in the Technology (XLK) Index.
That index is down 5.3% over the past five sessions, but it’s still up 1.0% year-to-date, but it looks vulnerable.
The problem for investors is there are no quick answers for social media companies, which may or may not face the House Energy & Commerce Committee on April 12th.
With the buy on dips crowds moving out of the way, it’s tough to pinpoint the downside even using charts, but the stocks to buy are the ones with amazing businesses that won’t be interrupted by regulations or fines, including names such as Adobe Systems (ABDE) that hit hard yesterday.
Meanwhile, the trade war doesn’t feel so scary after positive overtures from China and a fresh trade deal with South Korea. I wouldn’t be surprised if there was a special announcement involving China this week, too.
After the close, fundamentals, not headlines or scuttlebutt, were moving stocks.
Earnings propelled shares of Lululemon (LULU) and Restoration Hardware (RH), and Nike (NKE) popped on reports of a ten-year extension with the NFL.
Today’s Session
Tech Wreck
Equities turned it around this morning, even as the White House has weighed in with a salvo at Amazon. Around the world, there is increased talk of taxes and even breaking some social media and big tech companies up. Meanwhile, Facebook has made some concessions, and I’m sure there will be additional changes before Zuckerberg heads to Capitol Hill.
Tech names are trying to find a firmer footing, but the bias and momentum is strongly to the downside.
GDP
Breaking News
4Q 2017 GDP 2.9% versus consensus 2.7% & FY 2.6% from 1.5%
Driving forces:
- +Consumption*
- +Non-residential fixed investment
- +Exports
Drags
- -Residential fixed investment
- -Imports accelerated
*Consumer spending at 4.0% is highest since fourth quarter 2014 +5.1%.
Note: It's obvious fixing trade and building homes will take 2018 well over 3.0% GDP
Crude Oil
We are watching oil closely, as the EIA report will be released, and there is a serious chance we could see new multi-year highs for crude. Oil shares are so depressed, at some point equity will begin to follow the commodity.
Geopolitical
Big things are brewing on the Korean peninsula with South Korea cutting an impressive deal with the United States, and North Korea hinting at seriously dumping its nukes.
Breaking News
South Korea makes major concessions:
- Limits steel exports to U.S .to 70% of the average of steel sales to U.S. during 2015-2017
- Increase Imports of U.S. vehicles to 50,000 from 25,000*
- Eliminates "country of origin" labels
- Increase U.S. drug imports
- U.S. continues 25% tariff on pickup trucks through 2041
*Note: In 2017, U.S only exported about 10,000 vehicles
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