The collapse of Meta, Facebook’s parent company, a $252 billion hit, makes investors doubt the firms belonging to the Big Tech category. Millions of common investors had trusted their investments with Facebook and now, they have to brace themselves for the big loss.
Since March 23, 2020, the depths of the pandemic-induced market meltdown, tech stocks Microsoft, Alphabet, Apple, Amazon, and Meta collectively have accounted for 27 percent of the S&P 500’s gain. Going back five years, that is 36 percent.
That was then. On Thursday, Meta’s 26 percent plunge single-handedly wiped out almost 200 points off the Nasdaq 100, or about a third of the benchmark index’s 4.2 percent loss.
To be sure, not all tech names are taking a beating. Amazon shares rose about 18 percent in after-hours trading on Thursday after reporting profits that topped analyst estimates.
Low-cost index funds and exchange-traded funds are great during bullish times. But financial advisers said that some people can get lulled into a false sense of security and fail to realize just how exposed they have become to a small number of big stocks.
“To the extent that retail investors own it outright or through passive indices, the pain to their portfolios is going to be felt quite a bit more than for those institutional investors, or those investors who have appropriately underweighted – or not owned – that company in their portfolios,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
Meta shook just about everyone on Wednesday with news that Facebook had lost subscribers for the first time in its history. Until now, many investors, small-timers in particular, had come to view Meta as one of the bluest of blue chips, a company with seemingly unlimited potential.
Tobi Alli in Maryland was one of those traders watching the drop with dismay. He first bought Facebook in late 2019 and has been adding to his position since then.
“I sort of considered Facebook a safer stock that wouldn’t have this,” the 34-year-old said. “You expect these drop-offs with meme stocks, but you don’t really expect a 25 percent pullback from Facebook.”
Now, after seeing more than $1,000 wiped from his portfolio, he is asking himself some tough questions about his conviction in Meta.
Others were simply along for the ride because funds they invest in – both the actively managed and passive variety – have become so concentrated on Big Tech.
“So much market cap got tied to Big Tech names because the S&P and most other indices are market-cap weighted,” said Max Gokhman, chief investment officer at AlphaTrAI.
“Folks that hold their 401(k)s and invest in the default options do have tremendous exposure to tech and the Faang [Facebook, Amazon, Apple, Netflix, and Alphabet, parent of Google] stocks specifically.”
Carl Marcel, a 28-year-old business owner in Seattle, Washington, is facing pain in both his holdings of Meta stock and his index-tracking funds. He has about 70 percent of his portfolio in stocks, 24 percent in ETFs tracking indexes like the S&P and Nasdaq, and the rest in cryptocurrencies. He estimates that he lost between $20,000 and $30,000 due to the Meta drop.
“I wasn’t expecting that at all,” Mr. Marcel said. “In the last earnings report, everything sounded positive. Usually, they never disappoint us, so the market is rethinking how to approach it.”
Despite such a situation, Marcel remains optimistic about the company’s financial standing, trusting in the long-term purchase plans of shares and diversification. Similarly, Mr. Gokhman suggests other investors be calm and think broadly, outside the tech-related variables when investing their money. He concludes that more international stocks or value sector stocks can help direct the shares away from being tech-concentrated.