Nasdaq Falls the Most in Six Weeks

Fear that Facebook Inc.’s latest black eye will touch off a regulatory avalanche sent the tech-heavy Nasdaq indexes to the steepest losses in six weeks.

Facebook tumbled the most since 2015 after reports that a political advertising firm retained information on millions of users without their consent. That’s drawn the ire of officials on both sides of the Atlantic, with many calling on Chief Executive Officer Mark Zuckerberg to appear before lawmakers.

The scrutiny renewed speculation that legislators might crack down on social media and online retailing companies that control vast amounts of personal information on millions of Americans.

“The Facebook stuff is extraordinarily important for the overall market,” Michael Purves, Weeden & Co.’s chief global strategist, said by phone. “If the regulatory clouds come on Facebook, certainly Google and Amazon will face increasing questions about their ability to generate outsized earnings growth if the regulators are going to be beating them.”

The Nasdaq 100 Index sank 2.5 percent and the Nasdaq Composite was off 2.2 percent at 1 p.m. in New York, the steepest slides since Feb. 8, when the market entered its first correction in two years. The tech gauges had reclaimed late-January highs before Monday’s rout.

Apple Inc. also roiled the sector, as plans to build its own displays weighed on suppliers around the globe. The iPhone maker fell 0.7 percent after reports the company has a secret manufacturing facility in California for designing and producing its own device displays. The news reverberated across the supply chain, with some of the company’s biggest competitors tumbling. Japan Display Inc., Sharp Corp. and Samsung Electronics Co. all fell.

Micron, the second-best stock in the Nasdaq 100 this year, added to the misery with investors sending it down 3 percent three days before its quarterly earnings report. The stock was up 131 percent in the past year.

The selloff came after investors poured cash into technology shares last week at a rate not seen since the height of the dot-com bubble. Investors last week pumped $3.3 billion into the PowerShares QQQ Trust Series 1, the biggest exchange-traded fund tracking the Nasdaq 100 index, on speculation the group would continue its market-beating run.

The Nasdaq 100 was up almost 10 percent this year through Friday, more than triple the S&P 500 Index’s return. Google parent Alphabet Inc. lost 3.4 percent, while Amazon fell 2.4 percent.

“Nothing really positive has happened in tech, but it continues to receive inflows due to the fact that portfolio managers see tech as a secular growth story that simultaneously offers exposure to growth while also being somewhat insulated from other market forces,” Tom Essaye, founder of “The Sevens Report,” wrote in a note to clients Monday.

It’s a sea change for the FAANG group that for months was seen as a monolith that would climb higher, together, forever. Now as the tech heavyweights fall, it’s apparent just what’s at stake when investors are so reliant on the performance of a few names.

“If technology is the only area of current leadership, and that begins to soften, that leaves the market vulnerable,” MKM Partners technical analyst Jonathan Krinsky wrote in a note.

While last week set a high water mark for inflows, tech has been dominating all year around the globe. Investors have poured $9.8 billion into the sector since December, according to a Bank of America note from last week citing EPFR Global Data, a pace that would put the total near $50 billion by year’s end.

Looking at the PowerShares ETF, which is better known by its ticker QQQ, Apple is the top holding and Facebook also makes the top five. Combined, the two tech behemoths make up almost 17 percent of the portfolio. The ETF fell 2.8 percent, the most since Feb. 8.

“The FAANG stocks are a considerable portion of the return this year, yet again,” Matt Schreiber, president and chief investment strategist at WBI Investments, said by phone. “If they start to perform poorly, it’s possible the market could lose some of its positive directionality it has had because it has been the leadership in the return.”

The selloff in tech stocks, the market’s biggest winner in 2018, comes at an inconvenient time for the S&P 500, which now hovers near its 50-day moving average after oscillating around the key level over the past month. The industry, the biggest in the benchmark index with 25 percent representation, is also the only one that has fully recovered from the February rout and climbed to fresh highs.