Tech stocks continue their downward descent today as a number of popular companies are down across the board. Tesla (NASDAQ:TSLA), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and more dropped as much as 6% on worries over impending market conditions.
So, what’s behind today’s tech bust?
Roughly half of the companies on the S&P 500 are trading below their 200-day moving average. High growth operators, in particular, have been hit hard by the new year slump. Furthermore, it appears that the Federal Reserve’s upcoming interest rate hikes and tapering are behind today’s drop.
Some view the bearish market as a virtual fire sale on a number of guaranteed winners. Others believe this month’s pullback is merely the beginning of an economy-wide correction. Either way, the bears are certainly out of bed today as investors put their money where their mouths are.
Market Downtrend Brings High-Flying Tech Stocks Back to Earth
Last year was something of an anomaly for financial markets as a whole, but especially for the tech sector. Tesla, Microsoft and Nvidia (NASDAQ:NVDA) recorded their highest share prices ever in Q4 2021. This was while the Covid pandemic continued to run rampant through the country. The recovery was emphatically successful, perhaps overly so.
The growth brought along rampant inflation, the likes of which have also rarely been seen. The Fed has been giving warnings for months about plans to address supposedly transitory inflation with some contractionary monetary policy. Goldman Sachs (NYSE:GS) predicts the Fed will raise interest rates up to five times this year, a far cry from previous estimates.
Throw in a tumultuous Netflix (NASDAQ:NFLX) earnings report last week that saw NFLX stock drop 23%, and it’s not exactly a mystery as to why prospects are looking ominous for tech stocks. Growth stocks, in general, tend to be more volatile, prompting many to opt for value stocks in times of uncertainty. While it’s still early in the year, many are musing that 2022 will tell quite a different story for the stock market than many had become accustomed to last year.
Regardless of speculation, the proof is still in the pudding. How the markets respond to the first interest rate hike, estimated for March, will be a telling sign for the stock market and tech companies alike.
On the date of publication, Shrey Dua 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.
