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Why Are Tech Stocks Tumbling Today?

Ryan McQueeney
RLI Corp. (RLI) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

Shares of several of the world’s largest technology companies—including Amazon AMZN, Alphabet GOOGL, Apple AAPL, and Facebook FB—were in the red on Monday morning amid increased public scrutiny over data security and possible regulatory pressure.

Tech stocks are being dragged lower after multiple media reports over the weekend detailed an alleged incident that allowed political consultancy Cambridge Analytica to access personal information from 50 million Facebook users.

Cambridge Analytica is a U.K.-based firm that uses data mining and data analysis to develop strategic communications plans. The company worked on Facebook ads for President Donald Trump during the 2016 election cycle and has ties to conservative billionaire Robert Mercer and former Trump advisor Steve Bannon.

Reports from The Observer and The New York Times suggested that Cambridge partner Aleksander Kogan created an application that polled users on personal details in order to generate a psychological profile. This data was allegedly shared with Cambridge Analytica without Facebook’s consent, which represents a terms of service violation.

Facebook reportedly learned about the violation and blocked Kogan’s app in 2015. The social media company also supposedly ensured that all parties involved destroyed the inappropriate data. However, recent reports imply that not all of the information was deleted, prompting Facebook to suspend Cambridge Analytica while it investigates.

Companies with advertising-first business models—such as Facebook, Alphabet, and Twitter TWTR—have faced intense criticism for their failure to protect user data and vet content recently. Specifically, these websites have been linked to Russia’s propaganda campaign to influence the 2016 U.S. elections.

For investors, the concern is twofold. For one, these incidents could lead to increased regulatory pressure that could result in fines or added legal burdens going forward. Meanwhile, investors are also concerned about these companies being forced to spend more money on new employees and infrastructure to help prevent these problems.

Losses in the aforementioned tech stocks were enough to keep major indexes in the red through morning trading hours Monday. Elsewhere, traders are likely eyeing a pair of headlines with major macroeconomic consequences: the Fed’s first meeting with Jerome Powell at the helm and Brexit negotiations between the U.K. and EU.

The Fed will meet on Tuesday and Wednesday, with an interest rate hike considered all but guaranteed. And on Monday, British officials said that a deal with Prime Minister Theresa May’s government and the European Union has been reached.

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