The tech giants continued to get hammered today. We’ve talked about the prospects for an unraveling of the tech giants for much of the past year.
Despite the clear warning shots that were fired by regulators/lawmakers (and the President) along the way, these stocks kept going up — until they didn’t.
As I said back on September 4th, when Amazon crossed the trillion-dollar valuation threshold, “at 161 times earnings, the market seems to be betting on the Amazon monopoly being left to corner all of the world’s industries. That’s a bad bet. Much like China undercut the compeition on price and cornered the world’s export market, Amazon has undercut the retail industry on price, and cornered the world’s retail business. That tipping point (on retail) has well passed. And as sales growth accelerates for Amazon, so does the speed at which competition is being destroyed. But Amazon is now moving aggressively into almost every industry. This company has to be/will be broken up.”
A day later, Facebook and Twitter executives visited Capitol Hill for a Congressional grilling. Here’s an excerpt from my note that day: “If you listened to Zuckerberg‘s Congressional testimony in April, and today’s grilling of Jack Dorsey (Twitter) and Sheryl Sandberg (Facebook), it’s clear that they have created monsters that they can’t manage. These tech giants have gotten too big, too powerful and too dangerous to the economy (and society).”
Here we are, a little more than two months later, and the sentiment on tech has dramatically changed. Amazon topped the day it reached the trillion-dollar valuation and has lost a quarter of a trillion dollars in value since (down 26%). Facebook is down 39% since the record highs in July.
So it appears that we are finally seeing the “monopoly scenario” priced out of the tech giants. And with that, we should see money moving back into those stocks that have been left for dead in industries like media, retail, shipping (to name a few). This is the Dow/Nasdaq convergence we’ve been looking for for much of this year — and we’re getting it. At one point this summer the Nasdaq was up close to 15% on the year, while the Dow was flat. Now both are up just over 1% year-to-date. I suspect that Dow outperformance will continue.
We have G20 tomorrow, where the world will be watching for some movement on the U.S./China trade negotiations. Any hint at a deal should get this Dow trade moving aggressively higher.