Investors betting that the worst is over for battered technology stocks got a painful reminder this week that there is more gloom in store.
The Nasdaq 100 Stock Index sank 5.8 per cent in its worst week since January, after an inflation report on Tuesday suggested prices could remain higher for longer than expected.
The loss was the index’s third weekly drop of 4 per cent or more since the summer rebound ended in mid-August.
The Nasdaq 100 remains above this year’s low reached on June 16, but the gap is narrowing and many of the tech sector’s biggest names are already plumbing new depths.
Facebook parent company Meta Platforms hit the lowest mark since early 2019 after tumbling 14 per cent this week. Meanwhile, chip maker Nvidia is at the lowest in a year-and-a-half following an 8 per cent drop.
“Big tech faces more pain until inflation is solved,” said Matt Maley, chief market strategist at Miller Tabak + Co.
“Markets still need to adjust to the fact that we’re no longer going to have massive levels of liquidity and artificially low interest rates.”
After this week’s consumer price index report, traders are betting that another three-quarter percentage point rate increase is assured when officials convene next week.
Any hints they give about their future pace of tightening will help dictate where the economy and tech shares are headed in coming weeks.
US Federal Reserve chief warns of 'pain' in reducing inflation
Late on Thursday, package delivery company FedEx added to fears that the US economy was destined for recession when it withdrew its profit forecast, citing a deterioration in business conditions.
The news helped to send broad indexes sharply lower on Friday, while shares of major e-commerce company Amazon fell more than 2 per cent.
Nine Nasdaq 100 stocks made new lows on Friday, the most since the first week of July, data compiled by Bloomberg has shown. Among them were megacap shares like Alphabet, as well as Intel and Zoom Video Communications.
Still, for some investors, this week’s sell-off presents another good opportunity to scoop up tech stocks of companies like Microsoft at cheaper prices.
Phil Blancato, chief executive of Ladenburg Thalmann Asset Management, remains optimistic that inflation will cool in coming months, which would allow the Fed to pause its rate hiking campaign.
“The second the Fed says we’re going to slow down because we’ve done enough the market will absolutely roar," he said.
Erika Klauer, a portfolio manager at Jennison Associates, is taking a more cautious approach given how much uncertainty revolves around the Fed’s inflation fight, even though she believes that long-term growth trends for companies with disruptive technology remain intact.
“If we over-tighten, that will be very painful for corporate earnings and for the consumer pocketbook,” she said.
“I think headwinds are going to win over the short term.”
