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Big-Tech Stock Rebound Snapped With Rates Ready to Rise

·2 min read
Big-Tech Stock Rebound Snapped With Rates Ready to Rise

(Bloomberg) -- Technology stocks took a beating Tuesday with the Nasdaq 100 Index dropping 5.5%, its worst performance since March 2020, with every company in the tech-heavy benchmark declining.

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The culprit was a worse-than-expected inflation report that triggered a broad selloff in stocks. This marks the seventh decline of 4% or more for the Nasdaq 100 this year, the bulk of which occurred in May and June when it was tumbling toward its low for the year, according to a research report from Bespoke Investment Group.

The move halted a four-day winning streak for technology and other growth stocks, as investors grapple with the reality that inflation may stay higher for longer than they expected. All 100 members of the benchmark index closed in the red including utility American Electric Power Co Inc. and Starbucks Corp.

“Everything we thought about how tech stocks should be valued changes completely,” said John Brady, managing director at RJ O’Brien. “The market now sees a chance of a 100-basis-point increase, and that’s something that hadn’t been priced in.”

Read more: ‘They Should Do 100’: Traders Debate the Fed’s Next Rate Move

The selling was most acute in the more speculative corners of the market that are particularly sensitive to higher interest rates. Technology falls into this category because the stock prices are based on expected future earnings, which are devalued when interest rates rise.

Read more: Nasdaq 100’s Brutal Selloff Leaves Every Stock in the Red: Chart

Chipmaker Nvidia Corp., which is priced at more than 30 times earnings projected over the next 12 months, was the worst decliner in the Nasdaq 100 with a drop of 9.5%.

Many popular US megacaps are also considered defensive holdings due to their strong balance sheets and entrenched competitive positions. But on Tuesday, they weren’t spared.

Amazon.com Inc. tumbled 7.1% while Meta Platforms Inc. dropped 9.4%. Apple Inc. sank 5.9% in a drop that erased more than $150 billion in market cap from the world’s most valuable company.

Fed interest rate increases aimed at snuffing out inflation have haunted technology stocks for most of 2022 after the central bank’s easy-money policies helped spur huge gains in the sector. Optimism that inflation would cool and allow the Fed to dial back its tightening campaign helped fuel a rebound in July and August that pared some of the losses.

“We’ve given up the rally we had going into the report, and need to see how the market responds over the next few days,” said Mark Bronzo, managing member of Nudge Capital Fund. “You need to keep an eye on interest rates, especially for tech.”

Read more: ‘It’s a Reality Check’: Wall Street Reacts to Inflation Data

(Adds details on Apple, Microsoft shares and updates prices throughout)

©2022 Bloomberg L.P.