Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
What's wrong with the tech sector today?
Checking up on the markets near 2 p.m. EDT today, Wall Street as a whole was a mess. The Dow (^DJI 0.69%) was down 0.79% with only three out of 30 members showing a positive return. The broader S&P 500 dipped even deeper with a 0.9% serving of red ink. But the tech-heavy Nasdaq Composite Index had them both beat, down 1.6% on the day.
Not only that, but all of Tuesday's biggest-impact drops came from the tech sector as well. Here's how Google Finance reported the largest market-cap cuts today:
| Company |
Share Price Change |
Market Cap (billions) |
Market Cap Change (billions) |
|---|---|---|---|
|
|
(4.35%) |
$118 |
($5.1) |
|
|
(1.22%) |
$285 |
($3.5) |
|
Amazon.com |
(2.19%) |
$139 |
($3.0) |
|
Microsoft |
(1.02%) |
$276 |
($2.8) |
|
Apple |
(0.59%) |
$440 |
($2.6) |
Source: Google Finance, Oct. 8, 2013.
Did an earthquake swallow Silicon Valley while Seattle drowned in a tropical storm? Maybe each of these technology giants reported game-changing bad news separately last night. How else could you explain tech stocks' bearing the brunt of a marketwide malaise?
But the ticker feeds and national headlines didn't reveal any natural disasters. None of these tech stocks did anything to deserve a personalized billion-dollar haircut last night. Instead, they all got swept up in the general government-shutdown and upcoming debt-ceiling dramas -- and their strong gains earlier this year set them up for a stronger backlash than other stocks.
The Dow has gained just 2% over the last six months. The weakest performer in the table above would be Google (GOOGL 1.27%), which surged about 9.3% higher on strong second-quarter results. Facebook (NASDAQ: FB) absolutely crushed the market with a 74% price surge, again fueled by strong quarterly results showing that mobile ad sales suddenly gained traction.
Here's how the whole group performed. Note the purple Dow baseline, far below any of today's falling tech giants.
So the whole tech slump comes down to basic investor psychology. The government shutdown isn't going anywhere, and we're staring down the barrel of a potential default on government debt, with unknown effects on the stock market. Remember, sovereign debt defaults are as rare as hen's teeth in developed nations.
So why not take some risk out of your stock investments by retiring into cash? The easiest (but perhaps not the best) way of doing that is to sell off some of your biggest winners. All of today's biggest losers qualify for this treatment on a six-month scale, led by Facebook, which also took the biggest hit.
Zooming out a bit, tech stocks tend to beat the Dow in the long run, too. Take Facebook's too-short market history out of the discussion, and here's your five-year graph:
Dow member Microsoft (MSFT 1.65%) is barely scraping along here due to its lack of mobile success and a number of failed product launches, but the other three have humbled the Dow in the last five years. Apple (AAPL 0.64%) and Amazon.com (AMZN 1.30%) are two of the strongest growth stories in recent memory, even if you include Apple's fall and subsequent sputtering near the end.
So it makes sense for short-term speculators to sell any of these five tech stocks today. Long-term investors can take profits from Apple, Amazon, and Google with confidence -- short-term mystery solved.
And this is exactly where patient investors with long investing horizons start drooling and taking careful notes. The biggest winners are made from buying when there's blood in the streets, you know.
