It had become a creed on Wall Street and in Silicon Valley: quarter after quarter, year after year, the world's largest technology companies were gaining new users and increasing revenue. And with that, their stock prices would continue to go up and throw off any stumbling blocks.
This week this myth was smashed. And investors reacted on Thursday to the stock of Facebook, one of the most valuable companies in the world. The social media giant's shares tumbled 19 percent, erasing around $ 120 billion in shareholder wealth, which is one of the largest one-day destruction of the market value a company has ever suffered. Investors left Facebook shares after the company's disappointing quarterly earnings, in which the company warned of a sharp slowdown in revenue growth in the coming quarters along with rising spending on security and privacy enhancements.
The sudden decline also meant a test of the giant, technology-oriented stocks that were born The market for much of the year.
Before Facebook fell, more than half of the returns in Standard & Poor's 500 stock index this year was provided by just a handful of technology-related stocks, said Savita Subramanian, an equity strategist at the bank of America Merrill Lynch
In recent years, investors – from retailers to the largest hedge funds in the world – have acquired shares in these companies, including Facebook, Amazon, Apple and Google's parent company Alphabet. These tech giants were considered to be virtually invulnerable sources of revenue that could lead to earnings growth regardless of economic conditions.
As a result, their stock prices rose. Apple has grown by 15 percent this year alone. Alphabet has gained more than 20 percent; Amazon has risen more than 50 percent; and Netflix is almost 90 percent.
Facebook's stumble suggests that some of these stocks – as well as the broader market – could be particularly vulnerable if their financial results do not meet investor expectations.
Until Thursday, Facebook enjoyed tremendous profits. The stock rose more than 23 percent before reporting gains after the close on Wednesday. On Thursday afternoon all his profits were gone for the year.
It was the details of the Facebook report that seemed to scare investors. The company's quarterly sales lagged Wall Street analysts' expectations. And executives warned that the company would invest heavily in privacy and security, and that revenue growth would likely decrease in the coming quarters.
However, Facebook's sharp decline seems to have had limited effect on the wider market, which has shown signs of positive development in recent weeks
On Thursday, S. & P 500 was down only slightly despite Facebook's fall. Other big tech companies have not taken any hints from Facebook: Alphabet stocks rose 0.8 percent and Apple slipped just 0.3 percent. Amazon fell 3 percent, but recovered those losses after hours on Thursday after a strong quarterly report was released.
The S. & P. 500 fell only 0.3 percent on Thursday to 2,837.44, while the Dow Jones Industrial Average gained 0.4 percent to 25,527.07. The tech-heavy Nasdaq Composite Index was hit hardest by Facebook, falling 1 percent to 7,852.18.
The S. & P. 500 has risen more than 6 percent this year despite trading tensions in the US and its largest trading partner and the increase in Federal Reserve interest rates. The index closed on Thursday just about 1 percent below its peak on 26 January.
"The market is looking ahead," said Jeffrey Rubin, director of research for stock information company Birinyi Associates. "There will always be these one-day calamities."
It's quite possible that the Facebook stocks can recover and keep climbing. In March, the company's dealings with user data in the Cambridge Analytica scandal responded to a backlash in the size and reach of the largest technology companies, raising concerns that regulators might soon take action against these companies. Facebook shares fell 17 percent in the days after the news broke. In May, the company eliminated these losses.
Nevertheless, the sheer size of Facebook's crash on Thursday has become a focus for investors. The decline in Facebook's market value roughly matched the overall value of some of the country's best-known companies, including McDonald's, Nike and the industrial conglomerate 3M.
There are few examples of one-day losses that are so great. In September 2000, as the tech stock boom faltered, chip maker Intel warned that its sales could slow, causing its share price to fall more than 20 percent. The router has lost $ 91 billion in market value in one day. Adjusted for inflation, this loss in 2018 would be more than $ 130 billion, more than the value Facebook lost on Thursday.
But given the tremendous market value of today's technology giants and the fact that stock prices have fallen 20 percent are not unheard of, the size of the losses should not be surprising.
Apple is now worth more than $ 950 billion. Amazon, Alphabet and Microsoft are not far behind with market values in excess of $ 800 billion. Even after the stock market decline on Thursday, Facebook is the fifth largest listed company with more than $ 500 billion in stock market value.