By Wallace Witkowski, MarketWatch
Cloud-based enterprise stocks led the software sector lower during a broader selloff Monday, as businesses reportedly wait for signs of more economic certainty before parting with their IT bucks.
The First Trust Cloud Computing ETF /zigman2/quotes/205187458/composite SKYY +0.23% , which had been down as much as 3%, finished down 2.1% compared with the iShares Expanded Tech-Software Sector ETF /zigman2/quotes/201870252/composite IGV +0.23% , which traded 1.9% lower on Monday. That was against the backdrop of a 0.9% retreat in the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.45% and a 1.1% fall in the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.52% .
Software stocks have been a popular target this year, but recent concerns about businesses’ willingness to spend on tech in the year ahead could be convincing investors to back off for now. Large technology providers such as Cisco Systems Inc. /zigman2/quotes/209509471/composite CSCO -0.15% have been sounding alarms about their customers’ willingness to spend the past few months, and that could presage a slowdown in software spending ahead.
“I believe [Software as a Service] stocks are getting hit because of the softness in enterprise spend,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy, in emailed comments. “Enterprises are being very cautious with the IT spend right now given economic uncertainties, Brexit and China.”
Companies that went public this year were some of the hardest hit. Slack Technologies Inc. /zigman2/quotes/212180539/composite WORK -2.41% dropped as much as 8.3%, to a session low of $20.92, but recovered to a loss of 1.4% by the close. Zoom Video Communications /zigman2/quotes/211319643/composite ZM +1.01% finished down 7.5%, while security-software company CrowdStrike Holdings Inc. /zigman2/quotes/212513426/composite CRWD +4.20% declined 5.2%.
Shares of Atlassian Corp. /zigman2/quotes/207177221/composite TEAM +2.41% fell 4.9%, while shares of Okta Inc. /zigman2/quotes/210420951/composite OKTA -1.50% dropped 6% and PagerDuty Inc. /zigman2/quotes/210571191/composite PD +0.70% shares were down 5.1%. Twilio Inc. /zigman2/quotes/205796518/composite TWLO +2.01% fell 5.8% and Benefitfocus Inc. /zigman2/quotes/204534086/composite BNFT -0.18% shares fell 6.4%.
Workday Inc. /zigman2/quotes/201157610/composite WDAY -1.58% shares fell 4% and ServiceNow Inc. /zigman2/quotes/202729495/composite NOW -0.62% finished down 2%, having been down nearly 5% earlier in the session.
For the year, the First Trust Cloud Computing ETF is up 23%, compared with a 31% gain in the iShares Expanded Tech-Software Sector ETF, and a 29% rise in the Nasdaq.