If there’s one major source of instability presently in the stock market, it appears to be coming from this year’s fastest growing industry: technology stocks. In a divergence from the rest of the market, the technology-heavy Nasdaq 100 saw losses in late-June that were twice as severe as the S&P 500, according to this Bloomberg chart.
There are a number of explanations for the weakness of tech stocks relative to other sectors, ranging from some immediate disappointments for major firms to more deep-seated weakness in the industry. The important question here is whether the downturn is the result of lost confidence from short-term factors like Google’s antitrust penalties in Europe, or if there’s a bubble in the tech sector that is finally bursting.
Although it’s impossible to be sure which explanation is closer to the truth — until more time has passed — the evidence that’s available suggests that the tech industry’s troubles are more fleeting in nature than they were when the dot-com bubble crashed in 2000. The leading companies in the sector are more secure financially than they were in 2000, and the losses they experienced in June are relatively shallow in comparison to the rapid growth that technology companies have enjoyed in 2017.
Furthermore, while the growth of the technology sector may exceed that of other parts of the economy, the stock market in general has performed very well in the first half of 2017, which also suggests that the tech industry’s success is not exceptional enough to raise concern. That said, there are some legitimate concerns regarding the sector’s performance in June that warrant close attention, and the immediate troubles seem to be legal ones, most of them involving the European Union.
Google’s EU Troubles Are Symptoms of Larger Problems
On June 27th, the European Commission exacted a 2.4 billion euro ($2.7 billion) fine for violation of the EU’s antitrust regulations. The report cited the search engine’s tendency to direct users to the company’s own shopping platform while relegating competitors to less prominent places in their search results. This “denied other companies the chance to compete on the merits and to innovate,” as well as denying consumers “a genuine choice of services and the full benefits of innovation.”
The results have been costly for Google, whose parent company Alphabet Inc. saw its stock lose 5.8 billion dollars in the days following the fine announcement. More broadly, the news also proved painful for the technology sector, with Nasdaq losing nearly half a point and Facebook losing a full percentage point in value in a day.