From Birch Gold Group
On June 3, a total of $137 billion in market cap was wiped from existence in one day as, according to Wolf Richter, four of the infamous FAANG companies became targets of an imminent antitrust probe (emphasis ours):
It’s a rare moment in recent years that US government regulators are suddenly going after four tech and social media giants simultaneously – Facebook, Amazon, Google, and Apple. … The index dove 4.3% today, the biggest percentage decline since the infamous 4.6% drop on December 24, 2018. In terms of dollars, $137 billion in market capitalization was wiped out.
Reuters is calling it an “unprecedented, wide-ranging probe of some of the world’s largest companies.”
Google, Facebook, Amazon, and Apple are four companies part of a more comprehensive “FANGMAN” index put together by WolfStreet to monitor their market performance.
Wolf’s FANGMAN index dropped sharply on news of the probe (see chart):
As you can see in the chart, in addition to the sharp drop on June 3, the FANGMAN index of stocks has dropped substantially since April 29.
Wolf Richter wrote that he tracks this specific group of stocks because “they range from very overvalued to immensely overvalued, depending on the stock – and symptomatic for much of the stock market.”
The overvaluation is enhanced by the “sleight of hand” trick corporations play when they buy back shares with tax-incentive dollars to inflate their market cap. But share buybacks and overvaluation may only play a small part in the Government’s antitrust probe.
A MarketWatch article shines a light on several other possible reasons for the imminent investigation, including the First Amendment:
There is bipartisan interest in revisiting the dominance several big tech companies have managed to foster in their markets. That, coupled with the political and public attention given to social media companies’ abilities to police their platforms, has put antitrust, data stewardship, and First Amendment issues in the spotlight.
Corporations like these understandably work hard to protect profit, but that may be a mistake according to Tim O’Reilly, a futurist who told MarketWatch:
That’s always where companies get it wrong—Microsoft got it wrong, IBM (IBM) before them got it wrong—they basically did things to extract money from customers rather than benefit customers.
It seems these four FAANG companies have been “getting it wrong.” This isn’t the first time these tech giants have been in trouble with various authorities:
- Facebook faces billions in fines from the FTC for egregious privacy violations.
- Google was hit with billions in fines in the EU for 3 different antitrust violations.
- Amazon was hit with a 250 million (euros) fine for “back taxes” in the EU.
- And Apple was fined 14.5 billion euros by the EU for similar tax problems.
Of course, these fines don’t account for all of these companies’ legal troubles, but it seems quite clear that the U.S. antitrust probe just around the corner may have traction. That will likely have ripple effects throughout the markets as investors panic.
But that isn’t the only reason investors may have to worry about the FAANG companies.
Trade War Tariffs May Provide Yet Another Blow
Apple (AAPL) has been the biggest loss in the FAANG space in May with a fall of 10.5%. Several analysts have turned bearish on Apple. Analysts have lowered the stock’s target price.
Executives at Apple have previously blamed the trade war in China for projected revenue failures earlier this year.
But the same Market Realist piece has a chart that reveals it’s not only Apple taking a “trade war hit”:
It isn’t common for FAANG companies to be hit this hard by trade war protectionist policy. As John Higgins wrote at Insider, it could be because of the “slow down” that a trade war causes:
While the FAANGs on average are less directly affected by rising trade restrictions than US IT firms in general, they are highly cyclical, and exposed to a slowdown in growth.
It certainly looks like the FAANG companies have a lot on their plate for the next few months…
Don’t Let FAANG Setbacks “Chew Up” Your Retirement
Investor tensions should continue to mount over the coming months as the Justice Department announces more detail about an imminent antitrust probe into these four tech behemoths.
And if some or all of Google, Amazon, Facebook, and Apple are found in violation of antitrust laws, it will likely send the market scrambling for answers. Since these companies are already overvalued, and in hot water from a legal standpoint, U.S. antitrust violations may reveal the unstable “house of cards” their stocks have been standing on.
Add protectionist monetary policies like trade tariffs that are already impacting these companies, and you have the recipe for a nasty period of fallout as they (and the markets) recover.
So don’t let this take a bite out of your portfolio. Protect your retirement with assets that are known to do well during times of uncertainty. Physical precious metals like gold and silver have historically done well during times when equities suffered. Start protecting your portfolio before the markets get “knocked out”.