Why investors are selling tech stocks

Tech stocks like Apple, Amazon, and Alphabet have driven the bull market. CNN's Christine Romans explains why investors are now ditching tech.

Posted: Oct 31, 2018 6:58 PM
Updated: Oct 31, 2018 7:23 PM

October was a frightening month for investors around the world.

From Hong Kong to New York, stock markets were slammed by a wave of fears about slowing growth, trade wars and higher interest rates.

The Nasdaq took the brunt of the damage. Investors fled from former tech darlings like Amazon (AMZN) and Netflix (NFLX), which both lost around one-fifth of their value.

Even though markets are enjoying a sweet Halloween rebound on Wednesday, the Nasdaq is still down 9% in October. It's on track for its worst month since November 2008.

"A financial nor'easter blew through global stock markets in October," David Kelly, chief global strategist at JPMorgan Funds, wrote to clients.

The broader S&P 500 is down 6.5% in October, on pace for its worst month since 2011. And despite the Dow's 300-point rally on Wednesday, the index has shed 1,200 points, or 5% this month. That hasn't happened since January 2016.

"The market is damaged. Sometimes it takes time to get the damage undone," said Michael Block, market strategist at Third Seven Advisors, a private wealth management firm.

The pain spread to overseas markets, which were already slumping because of weaker economic growth and concerns about trade and politics.

Hong Kong's Hang Seng tumbled 10%. China's Shanghai Composite lost 8% in October, sinking deeper into a bear market. Italy's benchmark, dogged by political headaches, shed 8% as well. The MSCI EAFE, an index of stocks in 21 developed markets excluding the United States and Canada, dropped 10%.

As good as it gets?

Blame for the market turmoil is rampant. President Donald Trump and administration officials have suggested it's all about fear the Democrats will retake Congress. But few market analysts cite the midterm election as a primary driver.

Instead, investors worry that US economic and profit growth may have peaked. They're wondering: Is this as good as it gets? And if so, are stocks valued too richly? Is the Federal Reserve raising rates more quickly than the economy can handle?

"You've had what feels like peak growth rates and peak consumer confidence," said Matt Forester, chief investment officer at BNY Mellon's Lockwood Advisors.

Alarming profit warnings from industrial bellwethers like 3M (MMM) and Caterpillar (CAT) spooked investors. Amazon's revenue miss and cautious outlook added to concern that momentum stocks are too expensive.

"The global synchronized recovery has morphed into a global slowdown," said Forester.

In early October, the IMF downgraded its 2019 outlook for both the United States and China. The IMF cited the deepening trade war between the world's two largest economies.

Even the oil market has been infected by the growth fears. US oil prices have plunged more than 9% in October, while Brent crude is down 8%. Both would be the worst for any month since July 2016.

"There is no getting around the fact that the global economy is slowing," Ed Yardeni, president of investment advisory Yardeni Research, wrote to clients on Wednesday.

Bear market fears

Some fear this is the beginning of the end of the longest bull market in American history. They point to pain felt by higher interest rates, especially in the real estate and auto markets.

The end of the decade-long era of easy money from central banks is causing liquidity in global markets to vanish, according to Morgan Stanley equity strategist Michael Wilson. That trend has set off a series of rolling bear markets around the world that finally infected US stocks.

"It looks to us like this rolling bear is quickly turning into a cyclical bear," Wilson wrote to clients on Monday.

The S&P 500 is down about 7% from its all-time high. It would need to plunge much further to hit the 20% threshold considered a bear market.

Wilson argued this would be a short-term market downturn, known as a "cyclical" bear market. He said it would occur within a "secular" bull market, or one that lasts for a long period of time.

Many others believe the market is experiencing a healthy correction after becoming overheated. The US economy is still enjoying brisk growth and Corporate America is making gobs of money, even if it's at a slower pace.

If they're right, the October scare could be a repeat of the January-February market plunge. US stocks plummeted (recall the twin 1,000-point drops for the Dow) before eventually recovering to set new record highs.

"We're not there yet," Block said when asked about a bear market. "We are seeing a lot of excess. Maybe we needed a month like October to take some of the air out."

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 265146

Reported Deaths: 5777
CountyCasesDeaths
DeSoto17741191
Hinds16891332
Harrison14279204
Rankin11239220
Jackson10917190
Lee9071145
Madison8599169
Jones6731118
Forrest6208124
Lauderdale6121192
Lowndes5544120
Lafayette520598
Lamar505865
Washington4933125
Bolivar4126109
Oktibbeha408382
Panola386981
Pontotoc377460
Monroe3686110
Warren3685103
Marshall357170
Union356864
Pearl River3495106
Neshoba3490154
Leflore3118109
Lincoln306788
Hancock294262
Sunflower291975
Tate280662
Alcorn273154
Pike270181
Itawamba269363
Scott260048
Yazoo256756
Prentiss253754
Coahoma249755
Copiah249749
Tippah249750
Simpson242872
Leake238167
Marion224273
Grenada223972
Covington221073
Adams215171
Wayne213734
Winston207671
George204739
Newton199946
Attala197064
Tishomingo194961
Chickasaw189344
Jasper181138
Holmes172068
Clay166837
Tallahatchie157235
Stone152525
Clarke148162
Calhoun141322
Smith130026
Yalobusha123335
Walthall114537
Greene113729
Noxubee113026
Montgomery112036
Carroll106822
Lawrence106817
Perry105131
Amite102126
Webster96824
Tunica89021
Claiborne88825
Jefferson Davis88430
Benton85823
Humphreys84724
Kemper80920
Quitman7139
Franklin70617
Choctaw63713
Wilkinson59825
Jefferson56821
Sharkey45217
Issaquena1606
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Alabama Coronavirus Cases

Cases: 441170

Reported Deaths: 6660
CountyCasesDeaths
Jefferson646811007
Mobile31620572
Madison28310217
Tuscaloosa21525275
Montgomery19954332
Shelby19335132
Baldwin17256189
Lee13205107
Morgan12639142
Etowah12107181
Calhoun11521206
Marshall10471123
Houston9009164
Limestone834981
Cullman8274124
Elmore8214110
DeKalb7894107
Lauderdale7871107
St. Clair7854130
Talladega6481112
Walker6036183
Jackson601545
Colbert549994
Blount547386
Autauga537662
Coffee462464
Dale410785
Franklin374950
Russell357515
Chilton345473
Covington339680
Escambia335444
Tallapoosa3149109
Dallas313296
Chambers304270
Clarke300236
Pike262531
Lawrence254155
Marion253761
Winston233642
Bibb222348
Geneva211547
Marengo209331
Pickens199631
Hale185244
Barbour182738
Fayette178629
Butler174460
Cherokee165731
Henry159925
Monroe152421
Randolph146436
Washington142327
Clay130546
Crenshaw124045
Macon122337
Cleburne121825
Lamar120222
Lowndes115536
Wilcox107922
Bullock103528
Perry100018
Conecuh97922
Sumter90527
Greene77923
Coosa63618
Choctaw51924
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