It’s really an interesting time to be an investor. Today, with tech stocks down once again, investors are left pondering what the future may hold for the broader market in 2022 and beyond. To be sure, this market recovery from the pandemic has been a bumpy one. However, one thing most investors agree upon is the main catalyst for the stock market appreciation we’ve seen of late — unprecedented monetary policy stimulus.
Today, popular mega-cap stocks Meta Platforms (NASDAQ:FB), Nvidia (NASDAQ:NVDA), Apple (NASDAQ:AAPL) and Coinbase (NASDAQ:COIN) each tumbled, suggesting this market selloff could be indiscriminate. Thus far, these mega-cap stocks have held up relatively well. However, market concerns around inflation and the potential for rising interest rates have hit tech stocks hard. Most small- to mid-cap tech stocks saw massive declines in recent trading days. This followed reports of the minutes of the recent Federal Reserve meeting, suggesting rate hikes could take place as soon as March, with a more aggressive approach taken to reduce the Fed’s balance sheet in the near term.
With this background, let’s dive into what’s driving today’s decline in tech stocks.
Why Are Tech Stocks Down Today?
The second week of 2022 has started off with a flurry of activity. Today, a key report from Goldman Sachs (NYSE:GS) highlighted a new projection for rate hikes this year. Unfortunately, this projection is bearish for those thinking that easy money policies won’t go away that easy.
Goldman Sachs’ report suggests the Fed could hike rates four times this year, instead of the three anticipated hikes previously predicted for 2022. This updated forecast has sent most major tech stocks stumbling today, with investors looking to de-risk their portfolios.
Generally speaking, higher interest rates are bearish for most high-growth stocks. Companies with a significant percentage of their future cash flows coming from longer-term projected growth get hit harder when these cash flows are discounted to present day using a higher discount rate. Rising inflation concerns and a weaker-than-expected job market have been the catalysts for this updated projection.
Currently, it appears investors are taking a more cautious approach to equities today. Indeed, this has been the case for much of the past week. Will this continue? Time will tell. However, for now, there’s little appetite for buying the dip — something we haven’t seen in some time.
On the date of publication, Chris MacDonald 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.
