Think the highest-flying tech stocks are immune to trade tensions? As Monday’s market action suggests, it might be time to think again.
In a well-timed Monday note, Ingvild Borgen Gjerde, an economist at Capital Economics, warned clients that while the so-called FAANG stocks — an acronym referring to Facebook Inc. FB, -2.67%[1] Apple Inc. AAPL, -1.49%[2] Amazon.com Inc. AMZN, -3.06%[3] Netflix Inc. NFLX, -6.47%[4] and Google parent Alphabet Inc. GOOG, -2.65%[5] — are, on average, less directly affected by rising trade restrictions than U.S. tech firms in general, they are highly cyclical and exposed to a slowdown in growth.
Capital Economics was already looking for growth to slow next year, and Gjerde warned that escalating trade tensions could accelerate the process.
Read: Why a major trade war could mean a ‘full-blown recession’[6]
Tech stocks were certainly feeling the pinch on Monday, with the Nasdaq Composite COMP, -2.09%[7] dropping more than 2%[8] to lead a Wall Street selloff that left the Dow industrials DJIA, -1.33%[9] off nearly 500 points at its low. The Dow ended nearly 330 points lower for a decline of 1.3%, while the S&P 500 SPX, -1.37%[10] sank 1.4%.
See: Highflying tech stocks hammered by China fears[11]
The tech-led weakness comes as the Trump administration considers efforts to block Chinese investment in the U.S.[12] as well as curbs on technology exports to Beijing. That comes on top of the Trump administration’s threats to impose tariffs on imports of as much as $450 billion in Chinese goods; Beijing has threatened to retaliate.
While fears of...