The stock market enjoyed a powerful rally Tuesday on renewed hopes of a trade deal between China and the United States.
But that optimism gave way to a fresh round of selling after the stock market closed. That's because, as the Wall Street Journal reported, the Justice Department is opening a broad antitrust inquiry into the big tech companies.
Big tech under pressure after hours with the DOJ announcing a new antitrust review of the biggest players. Here's what @LoupVentures' Gene Munster says is ahead for $FB $AMZN $AAPL $NFLX $GOOGL pic.twitter.com/XDcnu2mz0i
— CNBC's Fast Money (@CNBCFastMoney) July 23, 2019
The Justice Department: A Regulator With Teeth
The Federal Trade Commission already announced investigations earlier this year, triggering a round of investor worries. However, this new effort could cause much more heartburn for tech investors and the broader stock market. Why's that? Because investigations of technology are generally the FTC's domain, and the FTC and the Department of Justice already had an agreement in place over how to handle the big tech investigation. And as the FTC explains on its website:
"Before opening an investigation, the agencies consult with one another to avoid duplicating efforts."
So why would we be getting two separate antitrust cases now when the FTC intentionally tries to avoid duplicating its efforts? Here's a possible hint:
"The FTC also may refer evidence of criminal antitrust violations to the DOJ. Only the DOJ can obtain criminal sanctions."
Given that the FTC has been looking into big tech for several months now, it makes an observer wonder if the FTC ran into bad behavior worthy of more serious punishment besides monetary fines. As the WSJ reported:
"The review is designed to go above and beyond recent plans for scrutinizing the tech sector that were crafted by the department and the Federal Trade Commission."
Big Tech in the Crosshairs During Election Cycle
Tech stock investors will be paying close attention to the headlines over the next year. That's because there is support on both sides of the aisle for breaking up or otherwise seriously cracking down on the leading tech giants. Numerous Democratic presidential candidates support tech breakups. The Trump Administration is also working on the issue. In fact, the timing of the DOJ's move is rather interesting, given that Trump tweeted this last week:
“Billionaire Tech Investor Peter Thiel believes Google should be investigated for treason. He accuses Google of working with the Chinese Government.” @foxandfriends A great and brilliant guy who knows this subject better than anyone! The Trump Administration will take a look!
— Donald J. Trump (@realDonaldTrump) July 16, 2019
As we reported, Peter Thiel called on the Trump Administration to investigate for "seemingly treasonous" interactions with the Chinese government.
The Stock Market Reacts
So far, investors have sold off tech stocks while leaving the broader market more stable. The Dow Jones index futures fell about 50 points on the DOJ news. Meanwhile, the tech-heavy NASDAQ futures skidded almost 1% following the report.
The stock market may recover, thanks to strong earnings reports from Snap, Texas Instruments, and Chipotle Tuesday afternoon. But for now, tech investors have to worry about political risk again.