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Some of the most popular tech stocks on the market suffered a sudden turnaround on Monday morning, amid renewed efforts to block Chinese investment and sales to US tech companies and doubts about rising valuations of tech companies.
While stocks were largely flooded early Monday, the technology seemed particularly weak, with the Nasdaq Composite Index
COMP -2.23%
suffering more than the S & P 500 index
SPX, -1.44%
and the Dow Jones Industrial Average
DJIA, -1.32%
Some of the biggest declines were recorded by Chinese Internet companies, which could be affected by President Donald Trump's administration plan to establish tighter rules for Chinese investment in companies technology and technology exports such as semiconductors.
Treasury Secretary Steven Mnuchin added to the pressure when he said in a mid-morning tweet that the announcement of the administration would not be specific to China, but would apply to " all the countries that are trying to steal our technology ".
The hardest hit were tech stocks that have performed well lately, such as Netflix Inc.
NFLX, -6.13%
The streaming-media company fell more than 6% in the first hour of trading on Monday, after reaching a record set in recent weeks. The Netflix stock had more than doubled so far this year, but the company revealed the departure of its top communications executive late Friday for inappropriate comments.
While Netflix does not sell its streaming service directly to China, it partners with iQiyi Inc.
IQ -7.35%
which was made public in the United States earlier this year and also hit a serious jag Monday to continue a volatile race. Other Chinese Internet stocks have also been affected, such as Alibaba Group Holding Inc.
Baba, -5.21%
and Baidu.com Inc.
BIDU, -4.16%
with the internet KraneShares ETF CSI China
KWEB, -4.36%
fall of about 4%.
Chip shares have also changed, with highflux like Micron Technology Inc.
MU, -6.80%
Pain. Micron, which has been helped by a rise in memory prices, but has faced problems and investigations in China, fell more than 5% Monday after rising more than 31% in 2018 and more than 70 % in the last 12 months. The PHLX Semiconductor
SOX, -3.20%
fell by more than 2% as other hot stocks like Nvidia Corp.
NVDA, -5.04%
and Advanced Micro Devices Inc.
AMD, -4.18%
declined too.
Trump and his predecessor, President Barack Obama, have halted attempts by Chinese investors to acquire US chip companies, but new rules could be announced this week to codify tighter rules aimed at stifling Chinese industries. semiconductors by 2025, according to the Wall Street Journal. The reports were based on anonymous sources that pointed out that the rules could change.
See also: Trump prevents China to invest in the US flea industry, but what is the next step?
Trump has publicly fought against China over trade, and dueling price threats have shaken the stock markets.
Beyond China's concerns, there are fears that technology stocks have become overvalued as they have risen higher. For example, Bernstein Research analyst Toni Sacconaghi noted on Monday that technology companies' valuations are leaping faster than their expected future earnings, with the fastest growth coming from other key technology stocks, namely FANG shares: Facebook Inc.
FB -3.54%
, Apple Inc.
AAPL, -1.67%
, Netflix and Google parent Alphabet Inc.
GOOGL, -3.74%
GOOG, -3.35%
"While the outperformance since the beginning of technology was still disproportionate to the top 10 stocks in the industry, they actually saw their earnings fall on average – in other words, it's mostly non-core stocks. FANG that became more expensive ". , adding that the technology sector now has a future price-to-earnings ratio 1.18 times higher than the ceiling-weighted average, making it "the most expensive sector of the market".
However, Sacconaghi noted that the fundamentals for many technology companies are strong, and that the sector as a whole tends to be weighted towards the second half.
"As such, we continue to recommend both a slight overweight in technology and a balanced bar between growth and value … although our bias is to selectively add to the value of the bar. , "he writes.
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