How Low Can Faang Stocks Go?

Recent Silicon Valley selloffs weren’t temporary skittishness. They’re the new state of things.

- Michael Regan

Like so many things, the past month’s calamity in tech stocks may be best understood in terms of Caddyshack. In a scene midway through the movie, the country club pool fills up with people splashing around and having a great time. That is, until a girl tosses a Baby Ruth candy bar into the water and panic erupts. The stampeding crowd mistakes the chocolate treat for, well, something else.

For years, investors have been crowding into the tech pool, steadily raising the water levels at Facebook, Apple, Amazon.com, Netflix, and Google. And the companies’ Chinese counterparts. And the makers of the computer chips and other hardware that power the internet economy. Tech companies dominate lists of top holdings among hedge funds and retirement funds alike. NYSE FANG+ Index futures contracts even allow heavy hitters to bet exclusively on the continued good fortunes of Silicon Valley’s biggest.

That doesn’t look as smart today as it did a month ago, before the Nasdaq-100 Index lost close to $1 trillion in value. No one is sure yet whether the stampede out of the market was an overreaction. But unlike previous shareholder freak outs, this one reflects problems that can’t be erased by a strong quarter or two.