Twitter Hack: Are Tech Stocks Staring Down a Correction?

As Twitter (NYSE:TWTR) suffers a humiliating security breach, are high-flying tech stocks in danger of a pullback on the markets?

| More on:
Watch for the Warning Signs Stock Market Prices Trends 3d Illustration

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Tech stocks have been pulling back this week, despite (or because of) a fresh injection of vaccine hope that buoyed the markets. But could the retreat be a sign of something worse to come? While the TSX climbed to March highs on a potential vaccine breakthrough, it hasn’t been enough to keep some Canadian tech names in the green for the week.

Let’s browse the tech tickers and see how to play this high-momentum space right now.

Overbought tech stocks face a day of reckoning

Social media stocks have likely peaked. This makes them key targets when taking names off the table. Facebook has seen one public relations calamity after another, culminating in an advertising exodus. More recently, a number of verified high-profile Twitter (NYSE:TWTR) accounts were apparently hacked on Wednesday. The security breach raises serious questions for a platform whose most influential member is arguably the U.S. president.

Needless to say, the thesis for holding onto those Twitter shares has been degraded by this serious breach of privacy. The case for buying Twitter stock was already weakening, weighed upon by the same social forces buffeting the likes of Facebook. Between questions of foreign influence and the cash drain from disgruntled advertisers, social media stocks look like liquidity-raising ballast right now.

Meanwhile, investors may want to trim overbought names such as Netflix. This stay-at-home hero certainly satisfies a mid-pandemic growth thesis. However, with expectations high ahead of its next earnings report, Netflix shareholders could find themselves easily disappointed. Paired with Facebook’s advertising woes and the Twitter hack, American tech stocks could be in for a bumpy ride. But could the contagion spread to the TSX?

These Canadian tech stocks fell this week

Tech stocks tend to move quickly are already starting to pull back. Some declines have been swift: Twitter fell 4% after hours following the hack. Other tech names have been experiencing slower bleeds this week: Shopify is down 5.6% for the week at the time of writing. Docebo retreated 3% in the same period, while Kinaxis saw a five-day loss of 8%. These kinds of moves could signal the start of a broader retreat in tech stocks.

Docebo is arguably one of the less well-known names to break out, with 160% share price growth in just three months. But like a few of Canada’s fastest-appreciating tech names, Docebo is being pushed higher by the pandemic. Unfortunately, this element correlates certain businesses to bad news. A vaccine breakthrough could see a pullback. Conversely, a spike in cases could advance these names. In summary, tech stock rallies are now inversely proportional to vaccine breakthroughs.

In any other year the tech stock losses this week would be big moves, worthy of a fresh round of headlines. In the current climate, it looks more like the markets are beginning to expect a pullback in tech stocks. Given the uncertain economics of 2020, a second leg down could become priced in. If so, take heart: This could soften the impact of a market crash by gradually correcting names that have been run too far by bullish investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Facebook and Netflix. Tom Gardner owns shares of Facebook, Netflix, Shopify, and Twitter. The Motley Fool owns shares of and recommends Facebook, Netflix, Shopify, Shopify, and Twitter. The Motley Fool recommends KINAXIS INC.

More on Tech Stocks

Dial moving from 4G to 5G
Tech Stocks

TFSA Investors: 2 Canadian Stocks With Unbelievable Staying Power 

Amid economic uncertainty, investors look for stocks that can thrive in any crisis and grow long term. Here are two…

Read more »

Make a choice, path to success, sign
Tech Stocks

Nuvei Stock Crashed 23% After Q2 Earnings: Why I’d Buy More Today

Nuvei (TSX:NVEI) stock could stage a sharp recovery soon, as it looks way too oversold after Tuesday’s big crash.

Read more »

A worker uses a double monitor computer screen in an office.
Tech Stocks

Got $2,000? Buy These 2 Tech Stocks and Hold Until Retirement

Tech stocks are on sale, but that might not be the case for much longer. Here are two top picks…

Read more »

Business man on stock market financial trade indicator background.
Energy Stocks

Market Volatility: 2 Value Stocks to Buy Right Now

The market volatility does not look like it will let up any time soon, but these two stocks are too…

Read more »

movies, theatre, popcorn
Tech Stocks

Cineplex Stock Shoots Up as Meme Stocks Rally

Cineplex (TSX:CGX) stock seems to have started a rebound after meme stocks started climbing on Monday. But should investors buy…

Read more »

Target. Stand out from the crowd
Tech Stocks

This Is, Hands Down, the Top Canadian High-Growth Stock to Buy This Week

I expect this attractive Canadian high-growth stock to rally in the near term, as it’s set to announce its latest…

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Tech Stocks

Why Sierra Wireless (TSX:SW) Stock Has Surged 79% in 2022

Sierra Wireless Inc. (TSX:SW)(NASDAQ:SWIR) is a tech stock that has soared on the back of a big acquisition announcement last…

Read more »

Financial technology concept.
Tech Stocks

BlackBerry Stock is Rallying! Buy Before It’s Too Late

BlackBerry’s improving fundamentals have helped its stock soar lately and outperform the broader market.

Read more »