Market news today has largely centered around President Joe Biden’s appointment of Jerome Powell to another term as chair of the Federal Reserve. While this development was anticipated by many, it comes at a time when inflation is rising rapidly and economic uncertainty continues to weigh on investors. One thing that can be expected in such a scenario, though, is that markets will likely have mixed reactions to the news. While the S&P 500 has risen nearly 0.7% as of this writing, the tech-focused Nasdaq is down by 0.1%. The obvious question then is, why are tech stocks down today?
Tech Stocks Are Down: Which Are the Biggest Losers?
While the Nasdaq is in the red, plenty of high-yield tech stocks are not included in the index have also fallen today. Asana (NYSE:ASAN) is down by more than 19% this afternoon while cloud computing company DigitalOcean (NYSE:DOCN) has fallen by almost that much. CrowdStrike Holdings (NASDAQ:CRWD) is in the red by 8% so far today while Palantir Technologies (NYSE:PLTR) is down by almost 4%. With these tech stocks down, there are plenty of variables to consider.
For the first three aforementioned companies, today’s declines represent a clear plunge in share price after a week of only minimal downticks. For Palantir, though, they are the continuation of a downward trajectory that the company has been on since a post-earnings selloff. Experts such as InvestorPlace contributor Muslim Farooque have urged investors to view the declines a buying opportunity. Fellow contributor Faizan Farooque sees commercial growth for the company ahead.
What’s Powell Got to Do With It?
Why is Powell’s reappointment causing tech stocks to plunge? To start, yields on government bonds have extended overnight gains following the news, as reported by the Wall Street Journal. To be specific, the yield on the U.S. Treasury’s 10-year benchmark has risen from 1.581% to 1.594% while the same yield on the two-year note rose from 0.539% to 0.568%. This makes sense when we take into account that while analysts had widely anticipated this news, it had not been “entirely priced in by the bond market.” Additional tension within bond markets has likely stemmed from the fact that some on Wall Street were anticipating that Biden would replace Powell with Lael Brainard, a Fed governor who tends to favor more progressive approaches to monetary policy.
It absolutely bears noting that higher interest rates generally mean trouble for high-growth tech companies and as such, can cause stock prices to fall. It’s tempting to assume that a fast-growing economy will only spur further growth for companies driving the rapidly expanding tech sector. Rising interest rates can pose constraints for highly valued companies, though, particularly if their values are based on future profits, as is common among tech giants. We saw this type of scenario play out earlier in the fall and today we’re seeing it again. A late-September Barron’s headline cited Amazon (NASDAQ:AMZN) and Zoom (NASDAQ:ZM) as two companies for which rising interest rates were bad news. As can be expected, both tech giants are down today, both by roughly 2%.
What’s Next for Tech Stocks?
With Treasury yields rising today, it stands to reason we’re going to continue to see tech stocks down for the time being. That said, these companies are likely to bounce back quickly as uncertainty cools off and things return to normal on Wall Street.
For investors, these declines could be seen as an opportunity to buy the dip on valuable tech companies. The reappointment of Powell means that we likely won’t see any dramatic changes to markets as we move into the new year.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
