Tech Stocks Drop: Facebook, Software Shares Plunge

A Downturn in Tech Stocks

Recently, a question has arisen regarding the antithesis of positive market sentiment, often symbolized by the term "stonks."

Currently, U.S. technology stocks are experiencing a significant decline. The Nasdaq Composite, heavily weighted with technology companies, has fallen by 2.4% during early-afternoon trading.

Wider Impacts Within the Tech Sector

The situation is even more pronounced when examining specific segments of the tech industry. The WisdomTree Cloud Computing Fund, which effectively tracks the Bessemer Cloud Index, has decreased by approximately 5%.

The Bessemer Cloud Index itself monitors a collection of publicly traded software companies that primarily deliver their services via hosted (SaaS) or on-demand (API) platforms.

While TechCrunch typically doesn't provide frequent intraday trading updates, the accumulating losses following previous declines are becoming increasingly noticeable.

Market Correction Status

The Nasdaq has decreased by 7.7% from its recent peak. This decline, however, does not yet constitute a technical correction, which is defined as a 10% drop from recent highs.

For context, a bear market is characterized by a 20% decline from recent highs.

The SaaS and cloud computing sectors are currently faring the worst, with a nearly 13% decrease as of today’s trading. Public software companies are now in a correction phase and are approaching bear market territory if similar declines continue.

Facebook's Challenges

Further contributing to the market downturn, shares of social media giant Facebook have fallen by over 5%. This follows a period of negative publicity for the company.

A whistleblower recently revealed internal Facebook documents, sparking another wave of unfavorable media coverage.

Compounding these issues, Facebook’s entire suite of services – including Facebook, Messenger, Instagram, and WhatsApp – experienced a temporary outage due to server problems.

Facebook’s stock is down approximately 15.5% from its recent highs, placing it in a more precarious position than the SaaS sector, even considering a strong advertising market.

Looking Ahead to Q4

Overall, this is not the start to the fourth quarter that the stock market anticipated. With several initial public offerings (IPOs) expected before the end of 2021, this downturn presents an unfavorable beginning to the final public offering period of the year.