Technology stocks opened slightly higher after nearly $1 trillion in value got wiped out of the Nasdaq Composite Index this week as a surge in U.S. bond yields spook investors.
Nasdaq 100 was 0.4% higher on Thursday after the worst two-day rout since March even as Tesla Inc. and Netflix Inc. fell more than 1%. U.S. 10-year Treasury yields traded near 1.75%, the highest in about 10 months. The benchmark S&P 500 Index was up 0.3% in morning trading in New York, showing signs of stabilization.
Expensive software makers, biotechs and newly minted stocks fell the most this week, while Cathie Wood’s ARK Innovation exchange-traded fund, the poster-child of hyper-growth names, tumbled 8%. The fund was up 1% on Thursday.
Higher rates reduce the present value of future earnings, weighing especially on shares of highly valued, fast-growing companies. Zscaler Inc., Datadog Inc., Peloton Interactive Inc. and Crowdstrike Holdings Inc. have lost more than 10% this week. Megacaps haven’t been spared either: the NYSE FANG+ Index has fallen 2.8%, led by Nvidia Corp. and Microsoft Corp. Those stocks were trading slightly higher on Thursday.
The first quarter “will bring at least a temporary reversal of the technology sector valuation boom that lifted companies such as Apple and Microsoft to the world’s largest market capitalizations,” said John Ricciardi, head of global asset allocation at Deuterium Capital Management. Since touching a historic $3 trillion market value on Jan. 3, Apple Inc. has been in decline.
eToro Global Market Strategist Ben Laidler said that while he’s positive on 2022, the year will see lower returns than 2021, with more volatility.
Tighter Policy May Provide Spark for a Value Rally: Taking Stock
Hedge funds, which spent December unloading high-growth, high-valuation stocks, began the new year by jettisoning software and chipmakers at a furious pace. In the four sessions through Tuesday, these sales reached the highest level in dollar terms in more than 10 years, according to data compiled by Goldman Sachs Group Inc.’s prime broker.
A correction, however, might not be a given. Tech stocks took a similar beating in March, but bounced back right after.
“The dip in stocks seems a bit overdone,” UBS Global Wealth Management strategists led by Mark Haefele said in a note. “The normalization of Fed policy shouldn’t dent the outlook for corporate profit growth, which remains on a solid footing due to strong consumer spending, rising wages, and still easy access to capital.”
Dear Reader,
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.
Digital Editor
RECOMMENDED FOR YOU