Amazon, Apple Re-Emerging as Tech Leaders While Facebook Falters

Investors continued to drive U.S. equity indexes higher on Monday at the start of a busy week as the U.S. Federal Reserve prepared for its two-day monetary policy meeting on Tuesday. Wall Street also remained focused on U.S.-China trade discussions although no major news crossed the wires during the trading session. However, continuing to underpin the markets was the hope the two countries would strike a trade deal sometime between late March and April.

These two factors were the macro events driving the price action on Monday. However, over the past two weeks, sectors and individual stocks have re-emerged as key market drivers.

For two weeks, the stock market has been supported by a strong performance in the technology sector. This sector drives the NASDAQ Composite as well as the S&P 500 Index. The Dow isn’t as heavily weighted in technology so the current rally has had a minimal effect on its performance. If you look at the charts, you’ll see this taking place with the NASDAQ leading and the Dow lagging.

The initial spark in the technology sector was fueled by a sharp rise in shares of Apple last week. This move was triggered by a bullish analyst report from Bank of America Merrill Lynch. Aggressive investors took it from there by spreading the wealth across the sector. On Monday, the sector was led higher by a percent rise in Apple and a 1.5 percent jump in Amazon.

The rallies in Apple and Amazon were needed on Monday because of the emergence of negative news. While these two stocks were soaring, shares of Facebook and Boeing were plunging. But through the magic of allocation and weighting in the NASDAQ Composite and the Dow Jones Industrial Average, these losses were absorbed.

Facebook shares continued to confound investors with issues about privacy, encrypted messages and the possibility of more regulatory scrutiny re-emerging. Shares of the social media giant fell 3.3 percent on Monday after Wall Street brokerage firm Needham analyst Laura Martin downgraded the stock to a hold rating and warned clients that the recent departure of 11 senior members could spark further flights from the company.

“We are concerned that regulatory, headline, and strategic pivot risks will negatively impact Facebook’s valuation more than investors currently believe due to the negative flywheel created by Network Effects,” Martin wrote. “A Negative Effect suggests that departures will continue, and since we believe that people are a key competitive advantage of FAANG companies, this implies accelerating value destruction until senior executive turnover ends.”

Helping to hold back the Dow was another steep plunge in shares of Boeing. It’s hard to tell when this company’s shares will start to recover because of the on-going investigations into a pair of plane crashes over the past six months. In the meantime, the Dow could continue to lag the other major indexes until investors find value, or until the airplane manufacturers is cleared of any wrongdoing.

On Monday, The Wall Street Journal reported the Department of Transportation and federal prosecutors were scrutinizing the development of the company’s 737 Max planes. This comes after an Ethiopian Airlines flight involving the 737 Max 8 jet crashed last week.

The divergence between the Dow and the other major indexes can be explained by the plunge in shares of Boeing. However, as far as Facebook is concerned, investors have to remember that this stock began to weaken months before the broad-based sell-off began in October 2018. This is something to keep in mind as we approach first quarter earnings season, which is already raising concerns about growth.