The giants of tech may be doing more harm than good

Amazon and Facebook have soared to all-time highs, but their success may actually be counterproductive for the economy.

While the two tech giants are watching their stocks climb, other big names have reported first-quarter earnings below estimates and are struggling with falling numbers. Macy's and Disney are the two most recent names to be hit, and some traders are speculating that the internet giants could be to blame.

"Amazon is disrupting everyone," Manhattan Venture Partners chief economist Max Wolff said Wednesday on CNBC's "Trading Nation." "They're getting into one industry and then another. They tend to compress the profit margin and squeeze out other players."

The effects of the high-revenue, low-profit business model are incredibly widespread, he argued.

"[Amazon has a huge] impact on employment, on rents and on downtown usage," Wolff said. "We've seen mall retail struggling, we've seen some employment weakness, so there are real effects here that are nontrivial."

In addition to their vast online retail catalog, Amazon has also introduced a myriad of services over the years to compete in a variety of industries. The company has now expanded to include not only their Amazon Prime option that includes cloud photo storage for users, but also a grocery delivery service, a video streaming platform and a podcast network.

Facebook, for its part, has expanded beyond its core social media platform to become an ad revenue–generating powerhouse, thanks to its huge reach. This makes the social media giant another economic disruptor, according to Wolff.

"So Facebook and Google control online advertising, and Amazon is 30-plus percent of e-commerce," he said. "So [what's] a bit counterintuitive about these new and exciting technologies that are making everything competitive is they tend to be very dominant."

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But the true economic disruption of today's tech giants is hard to measure, especially given their reliance on the internet and their vast reach across multiple sectors. Convergex chief market strategist Nick Colas mentioned that the nature of today's tech industry has left many economists searching for answers.

"There's a big disruption going on and economists really have trouble quantifying it in terms of productivity growth, which at the end of the day is important for economic growth. There's an old saying that you can see the internet everywhere except the productivity data, and you're definitely seeing that play in the stock market as well," he said.

"You have disruption, but it's not yet creating the kind of growth that we had either in wages or in the economy with prior technologies like in the 1920s and '30s," Colas added.

Meanwhile, from a stock market perspective, tech stocks as a group aren't even managing to do well.

"Growth matters to a lot of investors. They're looking for things that can grow on the top line. And certain technologies, disruptive technologies, have that capability," Colas said. "Interestingly though, we're not getting a lot of tech leadership," given that the information technology sector is still down on the year, lagging the S&P 500.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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