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This Sell-Everything Rout Leaves a Sinking Feeling for Tech Stocks

·4 min read

(Bloomberg) -- The last time technology stocks saw a selloff of the scale of Tuesday’s wipeout, the Nasdaq 100 Index was a week away from kicking off a monster rally thanks to unprecedented stimulus from the Federal Reserve. But panic-stricken bulls don’t have the Fed on their side this time.

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Every single stock in the Nasdaq 100 ended Tuesday in the red after a surprisingly strong reading on consumer inflation. Though stocks are ticking higher on Wednesday, the ongoing equities exodus leaves the outlook gloomy. Rising chatter about the potential for a mammoth 1 percentage point rate hike by the Fed next week doesn’t help either.

“It’s a terrible environment for tech,” said Marija Veitmane, a senior multi-asset strategist at State Street Global Markets. The bank’s clients were “very concerned” about the inflation numbers, she said, adding that she sees further weakness in stocks.

The Nasdaq 100’s 5.5% drop Tuesday was the biggest since March 16, 2020, during the dark early days of the Covid-19 pandemic. While fiscal and monetary stimulus kept markets and economies buoyant until vaccines came along, those tools are off the table this time. Instead central banks are focused on containing raging inflation, even at the cost of crimping economic growth and employment.

Equities showed some modest stabilization on Wednesday, while the Nasdaq 100 rose 0.1%. Still, tech stocks seem to be immune to what little good news there is.

Take Apple Inc., the world’s largest company by market value. The company lost $154 billion in capitalization Tuesday, just a day after analysts flagged that the new iPhone 14 Pro Max was the best-selling model and surpassed what the older version did in a similar timeframe. That’s pretty much symbolic of how business seems to be going on as usual, despite the soaring cost of living. And yet, investors went on to dump its shares.

“Relatively resilient earnings are still not enough to withstand macro headwinds from ever-aggressive central banks,” Veitmane said.

However, there are bits that keeps bulls’ hopes alive: The Nasdaq 100 is sitting right above a support level and the valuation has sunk to 20.7 times forward earnings, sitting close to the recent lows in mid-June.

The on-paper-support might not be enough for a turnaround.

“Tuesday’s selloff is a reminder that a sustained rally is likely to require clear evidence that inflation is on a downward trend,” said Mark Haefele, global wealth management chief investment officer at UBS AG.

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Cathie Wood’s ARK Innovation ETF, the poster child for hyper-growth stocks, has been stuck to the lows after plunging 64% in the past year. Some of its holdings suffered from the end of the pandemic boom, while others were hurt by concern over higher interest rates.

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(Updates to market open.)

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