The technology sector fell as investors bailed out of a bet on the sector. Some strategists warn that the tech sector, in particular, looks overvalued.
Five tech companies, including Apple and Amazon.com, comprise "20% of the S&P 500," said Rich Steinberg, chief market strategist at wealth-advice firm The Colony Group. Several of those mega-cap stocks are flat or higher for the year to date.
"Those names have to be watched for cracks...because what goes up comes down. If you start to see money flowing out of those names and that creates a snowball effect of people getting out of indexes, it can feed upon itself."
Hopes that the tech industry would be insulated against the impact of Covid-19 are fading during earnings season. Worldwide information technology spending may decline 8% to $3.4 trillion this year due to the effect of the pandemic, according to market research firm Gartner, as reported earlier.
Still, analysts at one brokerage said a reading of corporate conference calls for Standard & Poor's 500 companies in the first quarter indicated growing demand for some types of technology.
"Executives highlighted digital transformation as their top priority given online engagement has skyrocketed following stay-at-home mandates and government-mandated business closures," said strategists at brokerage Goldman Sachs, in a research note.
"Digitalization solutions centered around shifting consumer behaviors within the low mobility, contact-less environment."
The Goldman analysts noted that consumer-facing apps such as video chat and grocery-ordering services are seeing a sharp increase in users because of the changes to consumer behavior related to the Covid-19 pandemic.
In a sign of the robust growth trends in online grocery-delivery apps, Uber Technologies is negotiating a deal to buy Grubhub in a stock swap that would value Grubhub at $6 billion, The Wall Street Journal reported.
In China, Tencent Holdings' first-quarter profit was fueled by strong demand for mobile games as homebound Chinese consumers turned to online entertainment, as reported earlier.
Tesla Chief Executive Elon Musk's decision to disobey California authorities and resume some work at the electric-vehicle maker's lone U.S. assembly plant in Northern California has become the highest-profile standoff between business and government as the country debates how and whether to reopen the economy.
Write to Rob Curran at firstname.lastname@example.org
(END) Dow Jones Newswires
May 13, 2020 17:42 ET (21:42 GMT)Copyright (c) 2020 Dow Jones & Company, Inc.