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Can Tech Stocks Rebound After Worst October Since 2008?

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On Oct 30, tech stocks bounced back, leading to a two-day rally. However, there’s no denying that tech stocks were one of the biggest sufferers in October that saw nearly $2 trillion getting wiped out from markets.

That said, the tech sector, led by FAANG stocks, comprising Facebook, Inc. (FB - Free Report) , Apple, Inc. (AAPL - Free Report) , Amazon, Inc. (AMZN - Free Report) , Netflix, Inc. (NFLX - Free Report) and Alphabet, Inc.’s (GOOGL - Free Report) Google, have been driving markets for a long time. However, trade war fears and concerns over a regulatory clampdown following data security scandals have been taking a toll on tech stocks for the last few months.

Tech Stocks Suffer Worst Month Since Recession

Tech stocks suffered badly in October, posting their worst month since 2008. The Nasdaq declined 9.2% in October, marking its steepest monthly decline since November 2008, when it dropped 10.8%. The broader S&P 500 technology sector declined 8% month to date, making it the worst month since May 2010. And once again the selloffs were led by tech giants. While Amazon declined 19%, Netflix, Facebook, Apple and Alphabet plummeted 20%, 4.8%, 4.6% and 9.7%, respectively, in October.

Understandably, investors are running away from tech stocks, which have been one of the best performers in recent years. Although there are a few macro factors like rising interest rates and bond yields behind this rough ride for markets in October, tech stocks have been bearing the brunt of President Donald Trump’s tariffs.

Moreover, renewed concerns over user data privacy and security after breaches and vulnerabilities by the likes of Facebook and Google are also affecting tech companies. Amazon has a Zacks Rank #2 (Buy), while Google, Netflix, Facebook and Amazon each carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance of FAANG Stocks in the Last 6-Month Period

Can Tech Sector Recover?

On Oct 30, tech stocks finally rebounded, leading to a two-day rally, after suffering a brutal October. The rebound was primarily lead by impressive results from Facebook. The social media giant reported third-quarter 2018 earnings of $1.76 per share, surpassing the Zacks Consensus Estimate by 30 cents (read: Facebook Q3 Earnings Beat Estimates, Revenues Up Y/Y).

Although the tech sector has been dealt with a blow lately, the third-quarter earnings season has so far been good for tech stocks, particularly the FAANG stocks. Earlier in October, Netflix reported quarterly earnings of 89 cents per share, beating the Zacks Consensus Estimate of 68 cents.

Amazon reported quarterly earnings of $5.75 per share, beating the Zacks Consensus Estimate of $3.29 per share, while Alphabet posted third-quarter earnings of $13.06 per share, outpacing the Zacks Consensus Estimate of $10.54 per share. Despite that shares of Amazon and Alphabet declined 7.8% and 1.8%, respectively, following their results.

Moreover, the tech sector is still one of the best performers in 2018. Also, per a new report from PwC, tech-related mergers announced in the third quarter touched $66.4 billion, double the value announced in the second quarter and the highest in almost two years.

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