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The Nasdaq index is struggling amid political intervention and profit taking
Thursday 13 Sep 2018 Author: Tom Sieber

As we write the US technology-heavy Nasdaq index is enduring its second worst September start since 2008. Only 2011 had a worse showing.

A decade ago makes for a notable point of comparison given that on 15 September 2008 investment bank Lehman Brothers collapsed.

With more than $639bn worth of its assets it was the largest bankruptcy in US corporate history and arguably represented the zenith of the financial crisis.

No-one is suggesting we are heading for anything similar in 2018 but given the technology sector has been a big driver in the bull market of recent years it is worth looking at what lies behind Nasdaq’s recent weakness.

It could simply be a bit of natural profit taking. In the last five years alone, the index has more than doubled in value as the so-called FAANG stocks (Facebook, Amazon, Apple, Netflix and Google (Alphabet)) have soared.

Simmering away in the background is an ongoing effort by US lawmakers to scrutinise foreign attempts to use social media to influence the outcome of elections. Executives from Facebook and Twitter both appeared before Senators although Google-owner Alphabet failed to show.

The index weakness could also reflect the latest intervention by President Donald Trump. He tweeted on 8 September that if Apple wanted to avoid tariffs on Chinese goods it should manufacture its products in the US.

Bank of America Merrill Lynch estimates Apple would have to increase the price of the iPhone by 20% to offset the implied increase in labour costs if it were to take Trump up on his advice.

UK investment trusts with exposure to the FAANGs have been hit by the tech sell-off. Since the start of September Scottish Mortgage Investment Trust (SMT) is down 5.5% and Polar Capital Technology Trust (PCT) is down 3.9%. (TS)

Nasdaq in a nutshell

Founded in 1971, Nasdaq is the second largest stock exchange in the world by total market capitalisation behind the New York Stock Exchange. Attracting growth companies like Microsoft and Apple since the 1980s, it is now significantly weighted towards the technology sector.

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