The Devolution Will Be Televised.

When it comes to bearing witness to the end of multilateralism and watching in real time as civil and political discourse devolves into short bursts of unadulterated, digital vitriol (developments which share a facilitator and are inextricably bound up with one another), there’s no place quite like Facebook and Twitter.

There is something supremely ironic about what’s unfolded in those two companies’ shares over the past week. In one way or another, both Facebook and Twitter have been blamed for inadvertently (one hopes) facilitating the rise of noxious populism, the appeal of which rests to a great degree on the idea that globalization is an inherently negative phenomenon. But what are Facebook and Twitter if not poster children for a globalized world? Or maybe not – maybe they serve the opposite of their intended purpose, shutting us off from one another by substituting virtual interactions for real ones.

But normative questions aside, it is unquestionably true that efforts on the part of the two platforms to mitigate the spread of propaganda and otherwise “clean things up” are weighing on investor sentiment both because those efforts are affecting the companies’ metrics and also because there is seemingly no end in sight to the threat of stricter regulation or, at the very least, heightened scrutiny.

It’s a kind of tragicomedy with multiple layers of irony. The companies helped shrink the world and thus epitomized globalization, but the very connections the platforms helped foster were hijacked in an effort to supercharge the propagation of anti-globalist sentiment. Then, when management attempted to “correct” the problem, shareholders punished them.

That’s a roundabout way of talking about the FANG contingent, which of course plunged into correction territory on Monday. The FANG index has fallen some 9% since last week’s Facebook debacle and is down more than 10% from its mid-June peak.

The Nasdaq 100 fell through its 50-DMA to start the week and investors are spooked, especially in light of the recent underperformance in industrials and the possibility that small caps, having already rallied hard on the (possibly dubious) assumption that domestic-focused names are immune from the trade conflict, are exhausted.

What comes next is anyone’s guess. It’s possible the baton can be passed from Growth stocks to something else. For his part, JPMorgan’s Marko Kolanovic thinks that under the right circumstances, the stage is set for a small cap rally and a bounce in emerging market equities should, for instance, the Fed decide to take a pause.

When it comes to tech though, one thing is certain: hubris is knocking. Have a look at this infographic from a BofAML note dated last week:

(BofAML)

Earlier this month, the bank was out with a separate note describing tech as “the lonely bull market.”

“Unlike the S&P 500, the Nasdaq 100 reached a new all-time high on July 13 [and] moreover, over the past 3 months, the outperformance of Tech vs. the average sector (normalized by the VIX to control for different vol regimes across time) stands in the 89th %-ile since July 2000,” the bank wrote, in a piece dated July 17.

(BofAML)

The bank went on to detail (again), tech’s “market cap hegemony”, noting that “while the 2017/Jan18 euphoria around Tech has since tempered, its weight within the S&P 500 continues to climb and now accounts for 26% of S&P market cap, the largest contribution by one sector since the dotcom bubble.”

(BofAML)

The title of the note from which those excerpts are taken: “How to efficiently hedge Tech ahead of Q2 earnings”.

To that, you’re probably doing your best Frank Cross (Bill Murray) impression from Scrooged:

Of course if we’re all being honest with ourselves, the writing has been on the wall with tech (and especially FANG) for a long, long time. Howard Marks famously tried to warn you last summer, for instance.

Circling back to everything said here at the outset, the greatest irony of all for Facebook is that when it comes to where everyone flocks to debate the demise of Western democratic norms in part facilitated by Facebook, there’s no place like, drum roll, Facebook.

And when it comes to documenting the ongoing collapse of the FANG contingent and of tech stocks more generally, guess where market participants went on Monday to share jokes, charts and tired, old FANG memes? Why, Twitter, of course.

The devolution will be televised.