(Anti)Trust Me.

“We do not see a material risk to Google’s business”, Citi wrote Monday, weighing in as big-cap tech careened lower on the way to underperforming the S&P by the largest margin since Goldman’s infamous “Is FANG mispriced” note, released on June 9, 2017.

The problem, as you may have heard, is a tag-team-style antitrust investigation being conducted by the FTC and the DoJ. Late Monday, the House Judiciary Committee got in on the action, saying it will open a bipartisan investigation aimed at deciding if digital platforms are stifling competition.

Citi describes the antitrust risk for Facebook as “even less clear than it is for Alphabet.” It’s not a “meaningful risk factor”, the bank says.

And look, they may well be right. Baird seems to think so. Or at least when it comes to the notion that the likelihood of a forced breakup of America’s tech behemoths is “fairly low”, as analyst Benjamin Gaither put it, in a note.

That said, regulatory concerns have been swirling around Amazon, Google and Facebook for a long, long time, and the latter’s role in inadvertently facilitating a hostile foreign power’s successful attempt to subvert American democracy doesn’t help. Meanwhile, the person who benefited the most from that same subversion (Donald Trump), is determined to make life hell for Jeff Bezos. Oh, and a notoriously fearsome Democratic presidential candidate is equally determined (if not more so) to break up all three of the companies mentioned above.

Given that, it’s probably not entirely safe to assume that the high-fliers which have, at various intervals, shouldered the burden of the rally, aren’t at risk of something more serious than an EU-style fine.

“Regulatory concerns for Google can be segmented into three primary areas: 1) Anti-trust, 2) Taxes and 3) Privacy [and] we see all three being front-and-center issues in 2019 and beyond”, Barclays wrote Monday, adding that “this comes at a troubling time, as Google’s fundamentals are eroding along with the rest of the internet.” The bank cautions that Google is almost out of friends inside the Beltway. “[The company] has few allies left in Washington after heavy alignment with the Democratic party candidates who didn’t get elected, so we’d guess this inquiry will be long and painful, but we doubt will result in breaking up the company”, Barclays goes on to say. Ironically, the bank sees a lot of upside if “Senator Warren gets her way.” Specifically, they cite “hidden gems” buried inside Google which aren’t currently reflected in the company’s market cap. A rough, back-of-the-envelope calculation shows 30% upside to current levels (see figure).

None of the nuance mattered on Monday, though. Folks were selling first and asking questions later, as details around the joint investigations emerged. It was a god-awful day for Google (in the top pane below is a bonus chart – the S&P is oversold for the first time since the Christmas Eve massacre):

To be clear, tech could have done without this. The Nasdaq 100 had already fallen in six of the previous seven sessions, so Monday’s outsized losses were whatever the opposite of “welcome” is (“not welcome”, I guess).

As alluded to above, if you feel like we’ve been here before, that’s because we have. This was a hot topic last March when Zuckerberg was under intense scrutiny and Trump was tweeting about Amazon every other morning. At the time, Goldman dedicated one of their “Top of Mind” notes to tech regulation and it included the following visual (more here):

(Goldman)

A lot’s happened since then, but it’s still a handy infographic.

Apple is roped into this as well. The shares swooned on Monday afternoon after Reuters said the DoJ was handed jurisdiction over the company in the wider antitrust investigation.

One of the key points here is the poor timing. Apple is on the frontlines of the trade war and there’s speculation the company may get FedEx’d (so to speak). At the same time, it goes without saying that these names are heavily/widely owned and we saw, in Q4, how bad things can get when consensus longs start moving in the wrong direction. Morgan Stanley’s Mike Wilson will be happy to tell you all about it.

This is such a familiar story that it barely bears repeating. These mammoths are responsible for an outsized percentage of the long-running rally, so the prospect that they might be headed for some manner of dramatic shakeup is disconcerting, even if, over the longer-run, it’s for the best.

This is complicated by the distinct possibility that the Trump administration is on the verge of driving the economy over a cliff – it wouldn’t be desirable for the heavyweights to come under pressure and have more days like Monday amid broader market turmoil tied to the trade war.

I’m not sure there’s much left to say about this situation until we get more information, and/or until analysts start to go through the motions in terms of gaming out various breakup scenarios.

One final point worth noting – the Nasdaq 100 lagged its equal-weighted counterpart by the most since 2013 on Monday.