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The red-hot darlings of the market have suddenly become pariahs. Facebook, Alphabet, Twitter, Apple, and Amazon all saw their shares take big hits last week.

The tech-heavy Nasdaq Composite, where most of these issues trade, lost 271 points on Tuesday and Wednesday. Only a Thursday rally kept the loss for the week from being a lot worse; as it was the Composite was down 1.44 per cent for the shortened four-day week. That pulled down its gain for the year to a modest 2.3 per cent.

Facebook made most of the headlines when it was revealed that the company has compiled immense amount of data on its clients which in turn was used by a third party to attempt to influence the 2016 election. Several U.S. television reports have been shown displaying stacks of paper containing data that Facebook collected on them personally. One reporter showed a pile of documents more than two feet high and said there was more – she didn’t want to waste more paper to print it all. The records included everything from personal tastes and political views to phone and text logs.

The public was appalled. Most had no idea this was being done, much less to the such an extent. Ostensibly, the strategy was to use the data to direct personalized advertising to individuals, but it now appears it has been put to more nefarious uses. Company founder Mark Zuckerberg has been summoned to testify before a Congressional committee and legislation cracking down on the extent and use of data collection may follow. Some advertisers announced they were pulling out and the stock tumbled.

Amazon took a hit for an entirely different reason. President Trump has made it clear he doesn’t like the company, ostensibly because he wants to protect small businesses from its massive marketing power and force it to pay more taxes.

He has attacked the company several times in the past two years. On Thursday he tweeted that Amazon pays “little or no taxes to state & local governments” and uses “our Postal System as their Delivery Boy (causing tremendous loss to the U.S.)”. Oh, yes, and of course they “are putting many thousands of retailers out of business!”

He followed that up on Saturday with more tweets, claiming that the post office is losing “Billions of Dollars” on delivering Amazon packages, and called for an end to the “scam”.

That may play well with his base, although many of them are probably regular Amazon users because of its low prices, vast selection, and fast delivery.

But it is unusual for a sitting President to attack a single company in so blatant a manner. Mr. Trump has targeted others in the past, including Boeing, Apple, and General Electric, but never in such a sustained and virulent way.

Many suspect that the real reason for these threats is the fact that Amazon founder Jeff Bezos owns The Washington Post, which, along with The New York Times and CNN, the President regards as the “fake news” leaders of U.S. mainstream media. In fact, in one of his Saturday tweets he accused the paper of being a “lobbyist” and said it should register as such.

If that is what is really behind this vitriol, it represents an assault on freedom of the press that is reminiscent of Putin’s Russia. The President is attempting to use the weight of his office to bring pressure to bear on the owner of one of the most influential media outlets in America.

Amazon’s stock dropped from a high of $1,617.54 on March 13 to a low of $1,386.17 on March 28, a loss of 14.3 per cent. But, interestingly, the stock rallied on Thursday after Mr. Trump’s latest tweet was posted. The shares gained almost $16 to finish the shortened trading week at $1,447.34. That’s still well off the mid-month high but investors appeared to be sending a signal that they aren’t taking the President’s complaints too seriously – at least not yet.

On Friday, The Wall Street Journal commented in an editorial that there doesn’t seem to be much the President can do to hurt the company. An antitrust suit probably wouldn’t fly since government “would struggle to prove consumer harm, the most basic criterion for an antitrust case. Amazon has disrupted the retailing business by delivering online consumer goods conveniently and often at lower prices”.

As for the President’s rant about taxes, Amazon says it does collect sales tax in all states where it is required. The post office could try to raise the rates on Amazon packages, which the President would love to see. But that would probably result in the company switching to another carrier with the loss of hundreds of millions of dollars to the already financially strapped postal service. The U.S. Post Office collected $19 billion from package deliveries last year, a large part of which was from Amazon.

Amazon founder Jeff Bezos is one of the wealthiest men in the world and he has remained silent in the face of the President’s outbursts. But if Mr. Trump keeps up his attacks and finds some way to initiate measures that would hit Amazon’s bottom line, shareholders won’t be so patient.

I said in a column at the start of the year to keep a close eye on Amazon’s share price. I regard it as the most vulnerable stock in the high-tech sector because of its excessive p/e ratio, which now sits at 229. As long as investors focused more on the stock’s momentum and the company’s future, the p/e hasn’t been a huge concern. But if Trump manages to put action to his angry words, and the result could be messy.

I originally recommended the stock in my Internet Wealth Builder newsletter in January 2017 at $817.14. It closed on Thursday at $1,447.34 for a gain of 77 per cent. I think the shares will eventually trade much higher but the next several months could be rough.

At this point, I suggest selling half your position and pocketing the gain. Then sit back and see how this battle of the heavyweights unfolds. This will trigger a taxable capital gain in non-registered accounts so talk to your financial advisor before acting.

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Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.

Follow Gordon Pape on Twitter at twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 23/05/24 4:00pm EDT.

SymbolName% changeLast
AAPL-Q
Apple Inc
-2.11%186.88
AMZN-Q
Amazon.com Inc
-1.14%181.05

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