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, -2.60% Apple Inc. AAPL, -1.37% Amazon.com Inc. AMZN, -3.24% Netflix Inc. NFLX, -6.51% and Google parent Alphabet Inc. GOOG, -2.55% — 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.
Tech stocks were certainly feeling the pinch on Monday, with the Nasdaq Composite COMP, -2.05% dropping 2.5% to lead a Wall Street selloff that left the Dow industrials DJIA, -1.31% off nearly 500 points at its low. The Dow remains off more than 400 points for a decline of 1.7%, while the S&P 500 SPX, -1.35% sank 1.8%.
The tech-led weakness comes as the Trump administration considers efforts to block Chinese investment in the U.S. 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 a...