Fed and fear of sell-off
The Nasdaq technology index is seeing the longest and most intense downward series in 21 years. The Fed’s “tough” stance on monetary policy led the stock investor to run without braking.
The most intense sell-off since 2001
American tech companies have never seen such an intense sell-off since 2001 and the bursting of the dot-com bubble.
In the past week, the Nasdaq fell 3.8% and marked its 7th consecutive week of decline. This is the longest series of declines in the technology index in 21 years.
Considering the first quarter of 2022, NASDAQ “flew color” by 20% and became the worst trading quarter since April 2008.
The index has “evaporated” more than 29% since it peaked on 19.11.2021 and ended last week at 11,354.62 points. The S&P 500 is lucky enough to exit the bear market through the narrow doorway as it is down nearly 20% from its nearest peak.
Cisco was one of the tech companies with the deepest down stocks in the week as it lost 13%. This development comes as soon as the computer network giant forecasts unexpectedly slipping sales in the current quarter.
Once considered lifeblood of the economy due to strong business links, Cisco said its business results reflect the shutdowns in Russia and Belarus and supply shortages resulting from the COVID-19 blockade in China. The business is not sure when the company will improve.
Dell’s stock lost more than 11% this week. Shopify, which sells software to electronics retailers, fell by almost 10%. The Workday cloud software company lost nearly 9% after analysts downgraded outlook due to recession fears. Security software provider Okta plunged 14%.
Stocks belonging to the Elon Musk ecosystem also declined. Twitter, now acquired by CEO Tesla for $54.20 a share, fell 6% this week to $38.29. Tesla shares evaporated 14% in value over the past week.
On the Big Tech side, Apple dropped 6.5% and marked 8 consecutive weeks of flaming red. Alphabet is down 6%, while Amazon is down about 5%.
Consequences of rising interest rates
High inflation, rising interest rates, protracted conflicts in Ukraine, and the pandemic causing China to close are causing investors to worry about investing in technology stocks and growth stocks. The strong selling move of the investor has swept the entire performance of the recent historic rally.
The United States Federal Reserve (FED) signals that it will continue to raise the exchange rate to counter inflation. Investors are therefore concerned that higher capital costs, combined with declining consumer confidence, will erode the rate of return.
“The Fed makes it very clear that there will be some pain ahead,” said Jason England – Director of Global Bond Investment Strategies at Janus Henderson Investors.
In early May, the Bank of America (BofA) survey found that the share of professional investors’ cash reached its highest level in two decades. The fund managers are attracting the most money since September 2011. Meanwhile, short positions on US technology stocks have been at their most considerable level since August 2006.
Earlier last week, even the investment bank Goldman Sachs published its “Investment Guidebook when US Securities Depressed.” Many negative short-term catalysts could pose risks to the stock market, according to Barclays bank analysts.
The minutes of the FED’s upcoming meeting on 25.5 will show how “stubborn” policymakers expect inflation to be and whether U.S. economic growth is resilient enough to face tight monetary policy.
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