The book written by Andrew Ross Sorkin, “Too Big To Fail”, in 2010 and later adapted for a film of the same name, was the inside story of how Wall Street and Washington fought to save the financial system during the Global Financial Crisis.  One of the lessons from the Crisis was that some banks proved too big to fail and the fears of systemic collapse pushed both regulators and governments into bailing out hundreds of failing financial institutions.

Not quite the same, but still in the mindset of too big to fail, we have Big Tech.  Technology companies were the darlings of the stock market last year, with the FANGs* in the US and the BATs** in Asia, commanding the largest share of global returns.   Some of these companies have become so large that investors have become fearful of a growing political backlash, with threats of increased regulation and taxes, which until now, did not seem to have a meaningful catalyst.  Until now.

The trigger for the backlash that has spread through the leading tech stocks and been firmly laid at the feet of the trade tantrum between the US and China, leaving investors facing an uncomfortable, albeit familiar story: nothing is forever and the invincibility of Big Tech can no longer be taken for granted.

The current political climate has not helped matters: there are fears of a White House personal vendetta against Amazon, and a massive leak of personal data from Facebook, has led to Big Tech being on the receiving end of huge losses.  Amazon tumbled almost 6% on the back of the latest Trump tweet, this time focusing on their agreement with the US Postal Service and threatening to level the playing the field with an increase in tariffs.  Why pick on Amazon?  Jeff Bezos, the president and founder of Amazon also owns the Washington Post, which has led much of the reporting about the recent chaos in the White House.

Another FANG member, Facebook, has seen its value drop almost $75 billion as a result of the data of 50 million users being leaked to a data analysis firm, which was allegedly used to help the Trump presidential campaign.  This has created a wave of annoyance among investors, peers and politicians, with other Big Tech companies distancing themselves from the Zuckerberg brand.  In particular, Apple’s chief executive was openly critical of Facebook’s monetisation of its customers and Google’s artificial intelligence expert, François Chollet, tweeted about their use of digital information as a “psychological control vector” and “totalitarian panopticon”.  In plain English, he sees Facebook as ‘Big Brother’ in the way they capture and manipulate personal data.

Outside of the FANGs we have an even more sobering story.  Tesla is being investigated for a fatal crash involving one of its self-driving cars and their share price dropped more than 7% when markets opened in the US yesterday.  March has been the worst month for Tesla in 7 years, with continued negative headlines around its finances and now the news of a fatal crash seeing the company fall more than 30% from last year’s high; that translates to over $22 billion wiped from Tesla’s value.  In what many have seen as brash and offensive, chief executive Elon Musk posted an April Fool’s joke, posing for a photograph with “Bankwupt!” scrolled on a piece of torn cardboard.  Not what we would expect from someone who relies on investors to believe in the company’s expansion plan without profits in the short-term; Tesla posted a loss of almost $2 billion last year.

This tide of bad news for the Big Tech is good news for short sellers, investors who sell shares they do not own (a form of derivative usage) in the hope that prices will fall, from which they profit.  It can be a risky investment strategy, but that has not stopped the FANGs now appearing in the top ten of most shorted US stocks.

It is unnerving to see the market fall this fast on what seems to be news that is not going to change the global economic outlook.  It is an example of having to hold your breath while the short-term sentiment passes, if your long-term view on the economy has not changed.

*Facebook, Amazon, Netflix and Google.

**Baidu, Alibaba and Tencent.