Over the course of the last week, the five largest U.S. technology stocks collectively shed $120 billion in market capitalization — about enough to purchase U.S. airplane-maker, Boeing, according to a report from Reuters, which added that the S&P 500 technology index, as a whole, weathered its largest 5-day decline in the last year.
According to Brad McMillan, Chief Investment Officer at Commonwealth Financial, a Massachusetts-based private investment firm, the drop in market cap was led by the highest performing firms in the tech sector — Apple and Alphabet — as investors apparently flocked away from technology stocks and sought to shift their portfolios into entities that pay higher dividends, particularly amid growing concerns over U.S. economic weakness.
“I think it’s a perfectly normal backing off,” McMillan said. “Tech has done really well. All of sudden everyone wakes up and says, ‘Holy cow, maybe we’re getting ahead of ourselves,’ and backs off a little bit.”
The five largest U.S. technology stocks by market capitalization are Apple (AAPL), Alphabet (GOOG), Microsoft (MSFT), Amazon (AMZN), and Facebook (FB), with the biggest losers this week being Apple and Alphabet, respectively. While Alphabet, Google’s parent company, was downgraded by Canaccord Genuity from “buy” to “hold” — resulting in Thursday’s sharp drop of 0.8%, shares of Apple also fell 0.6% on Thursday, extending their weekly decline to just shy of 7%.
Barclays analyst, Marc Moskowitz, wrote in a note to investors that he believes Apple has neared its peak valuation levels in its current iPhone 6 cycle, which could be a warning sign of “a bumpy ride lower,” he said, if the upcoming iPhone 8 ‘super-cycle’ ultimately falls short of analysts expectations.
Notwithstanding this week’s losses, the S&P 500’s technology sector (.SPLRCT) still remains one of the best performers this year, clocking in with gains of 17.4% in comparison to the S&P 500’s overall gain of just 8.6%.
According to Julian Emanuel, executive director of U.S. equity and derivatives strategy at UBS Securities, this week’s losses can be attributed in part to growing concerns among investors — and specifically that gains in the technology sector may be too highly concentrated in just a few entities like Apple and Alphabet, for example, in relation to the index as a whole. Apple and Alphabet have been among the highest performers so far this year.
“We had sensed over the last 4-5 weeks that clients were becoming uncomfortable with the clustering of returns to the S&P 500,” Emanuel said, while adding that “It felt to us that you had the elixir for a correction in the (technology) sector.”
Still, reports this week from the Departments of Commerce and Labor, respectively, paint a somewhat concerning picture of U.S. economic stability. While the U.S. economy added 138,000 jobs last month (well below the goal of 185,000), retail sales also fell by 0.3% in May, while the Labor Department’s Consumer Price Index shed 0.1% last month after rising by 1.9% over the last year.
It appears that consumers are wanting to hold onto more of their money these days, in a cautionary move that may or may not bode well for Apple’s future stock performance — specifically in relation to the company’s upcoming $1,000 iPhone 8.