Stocks had an ugly start to the week.
On Monday, each of the major indexes finished in the red with the tech-heavy Nasdaq leading losses, falling 1.8%, or 137 points, while the Dow lost 335 points, or 1.4%, and the S&P 500 lost 39 points, or 1.4%.
Losses on Monday were led by Facebook (FB), which saw shares fall 6.8% in the stock’s worst day in at least three years as the controversy over its handling of user data crescendoed over the weekend following a report in The New York Times that detailed a relationship with voter-profiling firm Cambridge Analytica.
On Tuesday, investors will have a lighter schedule to contend with as no economic data is set for release while the Federal Reserve will begin its two-day policy meeting that will culminate in Wednesday’s latest monetary policy statement at 2:00 p.m. ET.
On the earnings side, the schedule is also light as FedEx (FDX) will be the only major company reporting results.
And in markets, investors will look for stocks to rebound as Monday’s action makes the market’s position look increasingly fragile. In a note to clients on Monday, Morgan Stanley strategist Michael Wilson said that January’s market action looks increasingly like a “melt-up” phase for markets in which the highs for price and sentiment may have been reached.
“When we look at our internal data combined with industry flows and sentiment, we think there is a strong case that January was the melt-up, or at least the culmination of it,” Wilson writes.
“We recently had several clients tell us they think it was too brief a period to qualify as a proper melt up scenario; but we suggested January’s move was perhaps just a punctuation mark on a 59 percent rally in the S&P 500 from the February 2016 lows (26.6% annualized).
“In other words, by the time people are calling for a melt-up, it is basically over. Tax cuts were the event to capture investors’ imagination, but the reality is that the market had been pricing tax legislation in for months, if not quarters.”
All of a sudden, the FAANG stocks — Facebook, Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Alphabet (GOOGL), which, since FAANG is a better acronym than FAAAN, still counts as “Google” — are missing an F.
Over the last six months, Facebook shares are flat.
Meanwhile, Netflix is up almost 70% in that time, Amazon stock has gained just shy of 60%, Alphabet stock is up 17%, and Apple shares have gained 10%.
And given the market’s very negative reaction on Monday to the latest developments regarding Facebook’s treatment of user data, it appears the future for the social media company — which in the eyes of the investor community had been all but cemented as an indefinitely compounding cash-generating machine over the last couple years — is now uncertain.
And perhaps most worrying to investors is the notion that ‘Peak Facebook’ may have come and gone.
David Garrity, CEO of GVA Research and a former Wall Street analyst, told Yahoo Finance on Monday that, “Overall, the outlook [for Facebook] is that profit margins are going to be coming under pressure.”
“The company is going to have to add costs in terms of doing a better job of regulating what’s on the platform. Certainly their litigation costs, in terms of defending themselves against lawsuits brought by a wide range of sources, as well as government investigations, is going to be going up.
“And I think at the same time, on the margin, people will probably become disenchanted with what Facebook has to offer… I think we may actually have seen, sort of, the period of ‘Peak Facebook’…and I think profit growth going forward is going to be a little bit more difficult.”
With 2.2 billion users, the argument that growth at Facebook could be hard to come by in the future is perhaps not unexpected. But users, and perhaps more importantly advertisers, seeing the platform as something that can be left behind because of concerns over data protection, or simply because the experience is not positive, is another worry altogether.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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