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Antitrust Probe Likely to Hit These Tech ETFs

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The technology sector slumped in yesterday’s after-hour trading session on antitrust scrutiny concerns. The U.S. government announced on Tuesday afternoon that it has launched investigation on the largest U.S. tech companies for anticompetitive practices or using monopoly power. The review could lead to antitrust charges or new laws for tech giants like Facebook FB, Amazon AMZN and Alphabet GOOGL.

The threat is not new to FAANG stocks. The Federal Trade Commission (FTC) had already announced plans to scrutinize the industry’s practices earlier this year. The antitrust probe threat heightened in early June when the sheer news pushed the tech-heavy Nasdaq Index into  correction territory. FAANG stocks lost about $140 billion in value that time.

The latest news hit the market soon after Facebook’s $5 billion fine. The FTC voted to agree on a settlement of about $5 billion with Facebook for its investigation into the company’s privacy practices in mid July.

“The goal of the Department’s review is to assess the competitive conditions in the online marketplace in an objective and fair-minded manner, and to ensure that Americans have access to free markets in which companies compete on the merits to provide services that users want,” the latest government announcement says. “If violations of law are identified, the Department will proceed appropriately to seek redress.”

However, big tech stocks have driven the market rally this year despite antitrust talks and trade tensions. But the coming few days of trading will be decided by how big antitrust scrutiny will be for FAANGs and how solid their Q2 earnings releases will be (read: What's In Store for FAANG ETFs in Q2 Earnings?).

Market Impact

Alphabet Inc., Amazon.com, Facebook, Apple Inc. AAPL and Microsoft Corporation (MSFT - Free Report) lost about 0.9%, 0.9%, 1.5%, 0.5% and 0.1%, respectively, in the after-hour trading session on Jul 23.

The pressure in the tech space would likely hurt the technology ETF space in the earnings season. ETFs that could be hit hard are Google and Facebook-heavy Communication Services Select Sector SPDR Fund XLC, Fidelity MSCI Communication Services Index ETF FCOM and Vanguard Communication Services ETF VOX

Amazon-heavy funds like Fidelity MSCI Consumer Discretionary Index ETF FDIS, ProShares Online Retail ETF ONLN and Consumer Discretionary Select Sector SPDR Fund XLY could also take a hit for a short period of time.

Invesco DWA Technology Momentum ETF PTF, Global X Cloud Computing ETF CLOU and O'Shares Global Internet Giants ETF OGIG could also feel the pain (read: Internet ETFs & Stocks Top Bull Market: Will the Rally Continue?).

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