Today’s been quite the doozy for investors in top tech stocks. Investors across a vast range of technology companies are seeing a tremendous amount of red. This market-based bleeding includes many of the most-watched mega-capitalization stocks, including Tesla (NASDAQ:TSLA), Nvidia (NASDAQ:NVDA), Meta Platforms (NASDAQ:FB), Amazon (NASDAQ:AMZN), and Uber (NYSE:UBER).
These top tech stocks have been among the best-performing companies in the overall market. Indeed, these companies have generally driven index returns, which remain near all-time highs. While the selling pressure in these top stocks appears to be meaningful, each remains within spitting distance of their all-time highs. Accordingly, one can make the argument that things really aren’t all that bad for these tech players.
That said, investors are increasingly looking for safe havens right now. A rotation out of speculative growth and into defensive assets is raising eyebrows.
Let’s dive into a few reasons for this rotation today.
Why Tech Stocks Are Seeing Selling Pressure Today
It’s no surprise to investors that the Federal Reserve is becoming more hawkish. However, after last week’s inflation reading, it appears the bond market has had time to reassess its stance on yields. Accordingly, as of this morning, the yield on the 5-year and 30-year U.S. Treasurys saw the smallest gap since the onset of the pandemic. Yields on the 10-year U.S. Treasury rose to more than 1.86%. This is also the highest since the pandemic began, suggesting the record-low interest rates we’ve had are about to end.
For tech stocks, this rising interest rate environment is a huge negative. Since tech stocks generally have a higher percentage of their future cash flows positioned further out into the future, discounting these cash flows back to the present presents serious pressure. Additionally, higher interest rates could cool the economy. For these companies that are such a big part of the U.S. economy, that could mean slower top- and bottom-line growth from here.
Simply put, the market is spooked right now. Whether these concerns turn out to be unwarranted remains to be seen. However, investors appear to be taking a very cautious view with respect to the near- to medium-term outlook of the market. Accordingly, those looking to put fresh capital to work should be aware of this existing sentiment.
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.