Today, tech stocks are in focus for most investors. A basket of mega-cap companies, including Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT), are all down considerably. These one-day moves are the continuation of an overall downtrend we’ve seen throughout this year. On a year-to-date basis, most of the names on this list are down more than 25% at the time of writing.
Now, for more than a month, the Nasdaq has been in a bear market. The rapid decline in valuations we’ve seen across the board has typically hit more unprofitable and speculative names the hardest. However, the fact that investors are now seeing similar sorts of results from mega-cap tech stocks is worrisome. Indeed, many may be wondering when the carnage will end.
Let’s dive into some of the factors that are contributing to this bear market in tech right now.
Why Are Tech Stocks Down Today?
The most notable factor driving tech stocks lower today was a rather dismal inflation print. The most recent consumer price index (CPI) data for May is in, and we have a fresh new multi-decade high. May’s reading of 8.6% is the highest since 1981. More importantly, this is much higher than predictions of 8.3%. Additionally, this number is more than the previous 8.5% reading we got in March.
What does this have to do with tech stocks?
Well, these picks tend to trade at higher valuations than the rest of the market due to these companies’ growth profiles. Investors will pay more for growth in good times. However, if they think a downturn is on the horizon, multiples contract to “historical” levels. That’s what we’re seeing now — a broad-based reevaluation of the market.
Additionally, recent reports indicating several tech companies are slowing hiring isn’t helping the view that growth will proliferate from here. Reduced hiring could indicate less demand on the horizon. Indeed, corporate America tends to know a thing or two about how to size its businesses.
Overall, these macro factors are likely to be hard to overcome. Given how fast inflation is rising, perhaps the worst of the selling pressure isn’t over. At least, that’s what the market is pricing in today.
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.
