US tech stocks tumble as investor euphoria tapers off
Results of Apple, Microsoft and Tesla, and Fed Reserve’s monetary policy may hold the key to how the sector performs in bourses
Amid rising COVID cases, concerns over higher inflation, and the expectation that the Federal Reserve will tighten monetary policy, US stocks have been tumbling since the start of 2022. As against digital giants with promises of transforming the world, investors are seen looking for traditional ‘value’ stocks such as banking and energy.
On Friday, US stocks fell sharply, in tandem with the rest of the week and even month. Friday’s selling hit the Nasdaq Composite especially hard, taking it to its worst level since lockdown-hit 2020.
Tech majors Apple, Microsoft and Tesla are set to report results this week, and their performances may shape how the sector fares in the stock market, said a Guardian report. Once the pandemic recedes and lockdowns end, people worldwide may face a ‘cost-of-living squeeze’ that may leave them with little to spend on devices, it added.
Streaming giant Netflix, which posted its results last week, set a poor trend. Its shares fell nearly 22% after fourth-quarter earnings reflected dull subscriber growth. A record number of tech stocks have tumbled up to 50% from their all-time highs. In 2021, a fantastic show by tech giants’ shares had boosted the S&P 500’s IT index, helping it deliver 33% returns. But in less than a month in the new year, the index has lost around 10%.
Interest rate concerns
The immediate concern for tech firms are the interest rates. Since 1982, the US consumer-price index rose at the fastest annual rate in December 2021, said a Barron’s report. Amid such high inflation, the Fed is likely to raise interest rates. Anxiety over this could impact tech firms that are currently unprofitable but are promising better earnings in the future.
The other concern is over a big spike in bond yields. According to Barron’s, the yield on the benchmark 10-year US Treasury note touched 1.84% earlier this month, the highest since January 2020. It began the year at 1.53%. The m-caps of high-growth tech companies are linked to profits years into the future. Hence, elevated yields often discount the present value of future cash.
