Tech Stocks Slides, Nasdaq Drops the Most since March

Tech Stocks Slides, Nasdaq Drops the Most since March

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Key Takeaways

• S&P and Nasdaq Composite decline amid renewed inflation concerns
• Futures turn positive ahead of the opening on Wednesday

Big tech suffered a heavy sell-off yesterday and dragged the Nasdaq Composite to its worst single-day drop since March. Technology stocks, alongside growth stock as a whole, tumbled in response to inflation concerns and a surprise statement of Treasury Secretary Janet Yellen that the US could raise interest rates to cool down the economy.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” Ms. Yellen said in a pre-recorded interview for the Atlantic magazine. Later in the day, however, speaking on WSJ’s CEO Council, she backed off those remarks and said she does not think “there’s going to be an inflationary problem, but if there is, the Fed can be counted on to address it.”

The Nasdaq Composite declined 1.88%, or 261.61 points, to end the session at 13,633.50. The S&P500 fell 0.67%, or 28 points, to 4,164.66. The Dow Jones Industrial Average inched marginally higher, gaining 0.06%, or 19.80 points, to close at 34,133.03.

Following a week of strong earnings reports in which big tech over-delivered, the tech sector yesterday was the weakest performer as investors feared that the high valuations of technology companies could not be sustained in a high-interest rates environment. Apple, the biggest publicly traded company in the US, lost 3.5%. Google’s parent Alphabet declined 1.6%, while Facebook dropped 1.3%. Tesla shed 1.7%, and Amazon slid 2.2%.

US: The Market Anticipates a Strong Recovery

Fears of rising interest rates pressured the stock market, as well as concerns about rising inflation, which could push the Federal Reserve to taper monetary stimulus sooner than expected.

According to economists, the market is already pricing the strong recovery of the US economy. The quick growth in economic activity on the back of states reopening, combined with the expected additional $4tn federal spending has prompted investors to increase their risk appetite. Economists, however, argue that the market ran ahead of the economy. On that issue, investors are largely fearful to hold tech stocks when the economy is running hot.

As a response to the economic reopening and the improving outlook, investors are more inclined to bet on cyclical stocks, which have a higher chance to benefit the most from the ongoing recovery. The rotation trade has led to a rally in banking stocks, cruise lines, and airlines, while tech companies have largely been pushed aside.

Most of the technology stocks yesterday erased their gains from the blowout earnings reports last week, which produced record-breaking net income and revenue for big tech names, including Apple, Tesla, Google, and Amazon.

This month, apart from the Nasdaq Composite trading lower each day of the month, Bitcoin has also been struggling to maintain the upside momentum from earlier in the year. The digital currency dropped more

than 6% on Tuesday to reach a session low of $53,200. Later in the day, the largest crypto asset moved higher but still ended the day in negative territory, down 3.6%.

Today, US stock futures point to modest gains at the opening, led by the Nasdaq Composite. Futures contracts tied to the technology index indicate a higher open of about 0.40%, while S&P500 and Dow Jones futures are higher by 0.25% each. Bitcoin today remains moderately positive with a price hovering around $55,400 per coin, up about 1.5% on the day. Dogecoin, the cryptocurrency launched as a parody, made a new all-time high early on Wednesday. The meme coins price pushed near $0.70, placing the token in fourth place among thousands of crypto assets. Dogecoin’s valuation today floats above $85bn.