On Wednesday, battered tech investors finally had a day they could look forward to with equanimity: stock trading was suspended for the day in observance of a presidential funeral.
It was not a bad moment to take a breather. The four most valuable tech companies — Apple, Amazon, Google and Microsoft — had lost a combined $150bn the day before. That was not quite the $200bn they shed on a single day in October, but it was still one of the worst trading sessions in a bloody two-month run.
When stock prices fall hard, the question often worth asking is: Why did it not happen earlier?
There were presentiments of the recent volatility early in the year, when two reverberations passed through tech stocks. One was a reaction to the prospect of rising interest rates, and a sense that the benign economic and financial conditions that had supported the tech-led bull market were drawing to a close.
The other was caused by the opening of a trade war with China in which some tech companies stood to find themselves in the front line.
Those worries were lost amid solid economic growth, fuelled by a huge tax cut. Investors were inclined to look for the positive. But these days, the opposite is the case: any intimation of a slowdown has the capacity to rattle the markets. Just ask Apple, whose shares suffered a severe November slump as some of its suppliers scaled back their own financial projections, hinting at lacklustre iPhone demand.
Worries that loomed only distantly early in the year have come back with a vengeance. The trade war was the immediate cause of this week’s reversal. President Donald Trump first offered hope, pushing negotiations with China out to the end of February before a draconian increase in penal tariffs takes effect. But the mood soured quickly as Mr Trump again turned up the rhetorical heat on China, reminding the markets that no real headway has been made in the negotiations yet.
The White House has also proposed sweeping restrictions on the export of advanced technologies that could form the basis of the next wave of US global tech leadership, including artificial intelligence and quantum computing.
At the same time, the bond markets have been flashing warnings of an economic slowdown, adding to a cyclical rotation out of the growth stocks that have led the rally. The strength of the US dollar against emerging market currencies has added to the pain.
All of this has focused attention on a key question: How sharp a slowdown is tech facing in 2019?
Some parts of the semiconductor market, often the harbinger of broader economic reversal, have already been weakening. Semiconductor stocks peaked in March, nearly six months before the broader markets hit their high point.
According to UBS, the chip sector is now facing an overall revenue decline of about 4 per cent in 2019, its first since 2015. The highly cyclical memory market is the main culprit, but other segments are also slowing, with growth in the non-memory markets predicted to fall to slightly more than 3.3 per cent, from 7.7 per cent in 2018.
The big consumer internet companies, along with Apple, are also facing a marked deceleration. Growth among these companies is set to slow to 14 per cent next year, according to an estimate from Jefferies. That is still a remarkable growth rate for a group of companies that has reached such vast size. But compared with the 21 per cent growth of 2017 and 2018, the sense of a sudden slowdown is inescapable.
As the brakes are applied, it is only natural that investors would wonder how well these companies would survive the next economic downturn. Online advertising and ecommerce came through the Great Recession a decade ago relatively unscathed — though only after the biggest names in the sector had seen their stock prices fall 50 per cent or more.
A decade on, these companies are still in a phase of secular growth. But their markets are far larger and more mature, and they are unlikely to sail through the next economic downturn so smoothly. The valuations of the big tech companies have fallen towards the bottom of their recent ranges: in the current wary climate, it is hard to see the buyers coming back just yet.
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