Wall Street Shaken: Major Drop in Facebook Shares Pressures Technology Sector

On Wall Street, the major indices fell more than 1 percent on Monday, due to pressure on the technology sector, particularly Facebook shares, amid investor fears of tightening regulation in that sector.

The Dow Jones plunged 335 points or 1.35 percent, to 24,610 points, while the S&P 500 slid 1.42 percent, to 2,712 points, and the Nasdaq index dropped 1.84 percent, to 7,344 points.

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The biggest loser yesterday was Facebook shares, which fell by 6.8 percent, after lawmakers from the U.S. and Europe called on the CEO of the social network, Mark Zuckerberg, to explain how a consulting firm that worked on U.S. President Donald Trump’s election campaign gained access to the data of 50 million Facebook users without their consent.

The nearly 7 percent drop is the largest daily loss for Facebook shares since March 2014. The price of the stock is now 10.8 percent lower than its record level reached in early February, and it is considered to have entered correction territory, meaning it is 10 percent below its previous peak.

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“Investors are concerned about whether Facebook will be able to get advertisers to pay as much as they do today in the future. However, investors are not only worried about potential loss of advertising revenue; they are also afraid that these companies could fall under stricter regulation,” says Kim Forrest, an analyst at Fort Pitt Capital.

The drop in Facebook shares also pressured other stocks in the technology sector, with prices for Apple, Microsoft, and Alphabet sliding between 1.5 and 3 percent. As a result, the technology sector was the biggest loser yesterday, with an average price drop of 2.1 percent.

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Investors are cautious also because a two-day meeting of Fed leaders begins on Tuesday, the first led by the new chairman of the U.S. central bank, Jerome Powell.

An increase in the Fed’s key interest rate by 0.25 percentage points is expected, in the range of 1.5 to 1.75 percent, which would be the first increase in the cost of money in the U.S. this year.

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Last year, the Fed raised key rates three times, and this year it could do so three or four times, depending on inflation trends in the U.S. This, in turn, will depend on the strengthening of consumption following the tax reform introduced at the beginning of this year and economic growth.

Investors are also cautious due to the risks of a trade war after Trump announced new tariffs on imports of Chinese products to the U.S. last week.

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Trump has already imposed tariffs first on imports of solar panels and washing machines, and recently on steel and aluminum, which increases the risks of countermeasures from certain countries, primarily China.

European stock prices also fell yesterday. The London FTSE index weakened by 1.69 percent, to 7,042 points, while the Frankfurt DAX slid 1.39 percent, to 12,217 points, and the Paris CAC dropped 1.13 percent, to 5,222 points.