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The Journal Gazette

Friday, October 26, 2018 11:30 am

US stocks skid again on tech sell-off

THOMAS HEATH | Washington Post

October's stock skid deepened losses Friday on a global selloff in technology companies.

The Dow Jones industrial average dropped more than 300 points, about 1.2 percent, as U.S. trading opened. The tech-heavy Nasdaq Composite declined 2.8 percent. The S&P 500 was down 1.8 percent.

Markets have been volatile all month as investors digest data points including corporate earnings, U.S.-China tensions and a critical upcoming midterm election.

Ahead of trading on Friday, the Commerce Department reported a quarterly increase of 3.5 percent in U.S. gross domestic product, which exceeded projections. Wall Streeters said the healthy GDP rate was likely to moderate stock declines.

Friday's sharp retreat came on the heels of earnings reports late Thursday from Amazon.com and Google parent Alphabet, both of whom reported strong profit but a slowdown in revenue growth.

Both companies have emerged as windows into the economy; Amazon is the largest online retailer and Google dominates online search.

Amazon shares plunged 7 percent in pre-market trading. Google shares were trading down almost 4 percent.

The so-called FAANG stocks -- Facebook, Amazon, Apple, Netflix and Google -- are responsible for a big chunk of the gains in the bull market, which is in its 10th year.

But the high-flying technology sector has been hit hard in recent weeks as investors sold off on fears that FAANG's double-digit revenue increases could not hold into 2019.

"What is causing investors to elevate their agita is the worry over Amazon and whether a slowdown in revenues is a reflection of the U.S. consumer," said Sam Stovall, chief investment strategist of U.S. Equity Strategy at CFRA.

Phillip Swagel of the University of Maryland's School of Public Policy sees signs that global economic growth is pushing limits even as the U.S. economy remains pretty healthy.

"It would be nice of the rest of the world will keep growing and sustain us," Swagel said. "China has slowed. Europe is having a squabble between Brussels and Italy. There is uncertainty over Brexit. Japan is doing okay, but no one is expecting a contribution from Japan to global growth."

He added that one of the biggest obstacles to U.S. economic growth is the uncertainty about tariffs and whether they will limit business investment. Business capital expenditures are a big contributor to growth and jobs, and were a major goal of the Republican tax cut.

Still many investors are selling on concerns that 2019's economy may not be as strong as the past year.

"With inflationary pressures growing, an increasing number of corporates are guiding profitability expectations downward for 2018 and 2019, citing the negative impact of rising costs and the burgeoning tariff war," said Kim Catechis, portfolio manager at Legg Mason affiliate Martin Currie.

Stovall said markets are going through a correction, which is a decline of 10 percent from their highs.

"I am a big believer in history," Stovall said.

He said he expects a roughly 14 percent correction in the S&P within weeks.

"That's the average since World War II. And that is setting us up for a post-election pop, which historically is a 17 percent gain."