Tech stocks rebound from drop though negative drivers remain

Technology stocks rose on Wednesday, posting a partial rebound from a bruising three-day decline, though analysts said further volatility and losses are likely.

The S&P 500 information technology index rose as much as 1.7%, while the communication-services group — which includes such stocks as Facebook, Netflix, and Google-parent Alphabet — gained 2% at its intraday peak.

Such groups have tumbled over the week, with major Internet and semiconductor companies leading the broad and steep decline to multi-month lows. The tech index dropped more than 2% on Tuesday, building on Monday’s 3.8% decline. The three-day retreat was the worst since February for the index, which currently sits about 15% below an early October record.

There were no clear catalysts for Wednesday’s moves, with analysts instead pointing to the scale of the recent losses.

“It’s likely that this is a bounce back after a big decline, rather than the start of a long-term upward trend,” said Mark Grant, chief global strategist at B Riley FBR. “We’re still facing higher interest rates, tariffs with China, and what could be a significant problem in Italy. So while I’d like to think this is a trend that will continue, I’m not rushing in to be a buyer just yet.”

Tech stocks have been under pressure since early October, with much of the weakness driven by third-quarter earnings. A number of bellwether stocks — including Amazon, Alphabet, and numerous chipmakers — gave disappointing revenue outlooks that pointed to slowing growth.

So far this week, Apple has dropped 8.2%, putting it on track for its biggest weekly drop since April 2016. Netflix is down 7% and chipmaker Nvidia is down 12%, tracking for its third straight weekly decline.

Analysts argued that the issues sparking the sell-off haven’t gone anywhere, and that one of the most damaging narratives in the sector — signs of waning demand for Apple’s iPhones — was strengthened further when Bloomberg reported Foxconn Technology Group, the biggest assembler of the products, was planning to cut nearly $3 billion in expenses in 2019.

“We’ve had two very difficult days, so you could say that this is just a relief bounce, though the reason those days were so tough haven’t changed,” said Varkki Chacko, chief investment officer of Credit Capital Investments. “We do think a number of companies are very well managed and deserving of a higher valuation, but in the case of Apple there has been a very specific reason to step back.”

� L.P