Why are big tech stocks declining on Nasdaq?

Question

Accepted Answer

Nasdaq Declines as Investors Shift from Big Tech Amidst Rising Yields

Big technology stocks on the Nasdaq experienced a downturn due to a rotation of investor capital away from growth stocks, a trend exacerbated by rising U.S. Treasury yields. This shift in investor sentiment has placed pressure on companies with high earnings multiples, including major players like Apple Inc., Tesla Inc., and Microsoft Corp., whose shares saw declines of between 1.0 per cent and 2.5 per cent. The broader S&P 500 technology sector itself fell by 0.9 per cent, reflecting this market movement.
The Rationale Behind Growth Stock Rotation

Investors are moving away from growth stocks, a category typically comprising companies expected to grow at an above-average rate compared to their industry or the overall market. These companies often reinvest their earnings back into the business to fuel expansion, rather than distributing them as dividends. In an environment of rising inflation expectations, which have pushed benchmark 10-year U.S. Treasury yields to their highest in a year, investors tend to favour assets that offer more immediate returns or are perceived as less susceptible to interest rate hikes.
Impact of Rising Yields on High Multiples

Stocks with high earnings multiples, meaning their current share price is significantly higher than their earnings per share, are particularly vulnerable when U.S. Treasury yields increase. This is because higher yields on safer government bonds make them a more attractive alternative to riskier equities. Furthermore, the future earnings of these growth-oriented companies are discounted at a higher rate when yields rise, reducing their present value and thus their stock price. Many analysts have noted that this dynamic can lead to considerable pressure on such stocks.
Anticipation of U.S. Federal Reserve Meeting Minutes

The market's attention was also focused on the release of the minutes from the U.S. Federal Reserve's January meeting. While the Fed has maintained a stance of keeping interest rates near zero until inflation sustainably reaches 2 per cent and is expected to exceed that goal, the minutes could offer further clarity on the central bank's outlook. The combination of this accommodative monetary policy and the proposed US$1.9 trillion pandemic relief bill has led some observers to warn of a potential surge in inflation. However, some analysts, such as Mark Haefele, chief investment officer at UBS global wealth management, suggest that while a near-term rise in inflation is likely, the Fed may look past it and maintain its current rate policy, especially as economic stimulus is spread over time.

Reading history

Hide →

This history is cleared when the page is closed.

Why are big tech stocks declining on Nasdaq?

Loading

Was this article helpful?

Helpful

Not helpful

Report an issue

1

0

0

Share with friends