Tech in the crosshairs

06/12/19
  • High-profile US tech firms face antitrust allegations
  • Some analysts have questioned the validity of the charges
  • June 3 sell-off/rebound a template for the future?

It’s anyone’s guess how the government’s inquiry into possible antitrust violations by some of the biggest tech companies in the US will ultimately play out, but here’s a stab at some of the particulars:

●Congressional hearings are likely to include politicians asking probing, perhaps uncomfortable questions about the business practices of some high-profile US companies.

●Those inquiries could translate into negative headlines that could, at least temporarily, knock down the stock prices of said companies.

Skeptical? June 3 wasn’t that long ago, and lest we forget, that’s the day news broke that the government would be looking into several US tech titans, floating the idea that these companies may have engaged in unfair business practices, and perhaps should be broken up.

Alphabet (GOOGL), Amazon (AMZN), Facebook (FB), 12/31/18–6/11/19. Tech stock price chart. June 3 lows.

Source: Power E*TRADE


The chart above shows those headlines took nasty bites out of three of these stocks which, like the rest of the market, were coming off a rough May.

The fear wasn’t contained to these stocks, either. The S&P 500 (SPX), which had been trading higher early in the session, turned negative, while the Nasdaq 100 (NDX) took a -2.1% hit as the contagion spread throughout tech.

But the important thing to note is that as of yesterday, none of the targeted stocks (or the SPX or NDX, for that matter) had dropped below their June 3 lows. In fact, as the following 60-minute chart shows, GOOGL, AMZN and FB have all posted solid rallies since then, the latter two stocks boasting double-digit percentage gains over the past six days.

Alphabet (GOOGL), Amazon (AMZN), Facebook (FB), 6/4/19–6/11/19. Tech stock price chart. Bounced back from the bombshell

Source: Power E*TRADE


The possible mental pivot traders made from June 3 to June 4: It’s one thing to “investigate” companies for antitrust activities, it’s another for such accusations to hold water, and it’s entirely something else to break up companies.

In fact, in the days since the June 3 bombshell, more than one legal analyst has voiced skepticism about the allegations themselves, as well as whether the government would be able to successfully apply existing antitrust laws (which originated in the final decade of the 19th century) to today’s tech firms.1

But that doesn’t mean grandstanding—sorry, earnest and impassioned—politicians won’t land some effective verbal punches in their interrogations of tech execs. That may make for some juicy headlines that could send these stocks—and the wider tech universe, by association—lower on any given day.

But many patient bulls will likely be looking at these episodes to see if they have another June 3 on their hands.

Market Mover Update: Beyond Meat (BYND) remained beyond active, tumbling more than 21% intraday yesterday after J.P. Morgan downgraded the high-flying stock.2

Today’s numbers (all times ET): Consumer Price Index, CPI (8:30 a.m.), Atlanta Fed Business Inflation Expectations (10 a.m.), EIA Petroleum Status Report (10:30 a.m.).

Today’s earnings include: Lululemon athletica (LULU), RH (RH).

Today’s IPOs include: CrowdStrike (CRWD).

 

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1 MarketWatch.com. Four reasons why antitrust actions will likely fail to break up Big Tech. 6/10/19.

2 CNBC.com. Beyond Meat dives after lead underwriter JP Morgan downgrades: ‘Beyond our price target’. 6/11/19.

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