SAN FRANCISCO (Reuters) - A steep downturn in heavyweight Chinese internet stocks and recent weakness in half of the so-called FANG group have some investors worried that a key component of Wall Street’s near-decade long rally may be low on fuel.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 16, 2018. REUTERS/Brendan McDermid
Outstanding gains in Facebook (FB.O), Amazon (AMZN.O), Netflix (NFLX.O) and Alphabet (GOOGL.O) have underpinned much of the U.S. stock market’s rally in recent years, along with the broader tech sector, but the group is widely viewed as overbought and valuations remain expensive.
Backed up by strong earnings growth and investor confidence in Silicon Valley’s innovation track record, the S&P 500 technology index .SPLRCT is up 16 percent in 2018, making tech Wall Street’s top performer.
But a recent slump in China’s own superstar technology stocks, brought into sharper focus after Tencent Holdings (0700.HK) reported its first profit drop in almost 13 years on Wednesday, has increased worries about Wall Street dependence on a handful top-shelf growth companies.
Shares of Tencent, China’s largest social media and gaming company, have fallen over 6 percent in the past two days and are down by nearly a third from their record high close in January.
“Tencent is a good proxy for global growth and risk. Nowadays, with everything being so momentum driven in the market, if one thing goes, everything can go,” said Wedbush Securities senior trader Joel Kulina.
Also unnerving tech investors: Netflix and Facebook, which along with Amazon and Google-parent Alphabet make up the FANG stocks, have fallen sharply since their June-quarter reports.
With Netflix down 22 percent from its record high
