Tech stocks just had their worst two weeks since the pandemic began

Tech stocks just had their worst two weeks since the pandemic began

Pedestrians pass the New York Stock Exchange.

Michael Nagel | Bloomberg | Getty Images

The rebound that started in the third quarter has turned into a fiasco for tech investors.

The Nasdaq tumbled 5.1% this week after falling 5.5% the previous week.It was the worst two-week performance for the tech index since March 2020, when the U.S. Covid-19 pandemic began plunging more than 20%

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The third quarter is set to end next week, and the Nasdaq is on track for a third straight quarter of losses unless it can erase the current 1.5% decline in the last five sessions of the period.

Investors have been selling tech stocks since late 2021, betting that rising inflation and rising interest rates will have a huge impact on the companies that rose the most during the boom. The Nasdaq is now just above a two-year low from June.

What has hit markets this week is the Fed’s continued action, which on Wednesday raised its benchmark interest rate by another three-quarter percentage point and said it would remain well above current levels in an attempt to bring inflation down from its highest level since the early 1980s. The central bank raised its federal funds rate to 3%-3.25%, the highest level since early 2008, following a third straight increase of 0.75 percentage points.

Meanwhile, the dollar has been strengthening as rising interest rates pushed the 10-year Treasury yield to its highest level in 11 years. That makes U.S. products more expensive in other countries, hurting export-heavy tech companies.

“It’s a one-two punch for tech,” Jack Ablin, chief investment officer at Cresset Capital, told CNBC’s “TehcCheck” on Friday. “A strong dollar doesn’t help tech stocks. High 10-year yields don’t help tech stocks. help.”

Watch CNBC's full interview with Cresset Capital's Jack Ablin

Among these large-cap companies, Amazon had its worst week, falling nearly 8%. Google parent Alphabet and Facebook parent Meta both fell about 4 percent. All three are cutting costs or freezing hiring, citing weak consumer demand, tepid ad spending and inflationary pressures on wages and products.

As CNBC reported Friday, Alphabet CEO Sundar Pichai faced heated questions from employees at an all-hands meeting this week. Workers have expressed concerns about cutting costs, most recently Pichai’s need to increase productivity by 20 percent.

With tech earnings season about a month away, growth expectations are subdued. After growing more than 40% a year ago, Alphabet is expected to report single-digit revenue growth, while Meta expects sales to decline for a second straight quarter. Apple’s growth rate is expected to be just over 6%. Expectations are higher for Amazon and Microsoft, around 10% and 16%, respectively.

The last week has been especially tough for some companies in the sharing economy. Airbnb, Uber, Lyft and DoorDash all fell 12% to 14%. In the cloud software market, which has soared in recent years before plummeting in 2022, some of the biggest decliners are GitLab (-16%), Bill.com (-15%), Asana (-14%) and Confluent (-13%) ).

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Cloud giant Salesforce held its annual Dreamforce conference in San Francisco this week. In the segment of the meeting focused on financial metrics, the company announced a new long-term profitability target, signaling its determination to improve operational efficiency.

CFO Amy Weaver said Salesforce is targeting an adjusted operating margin of 25%, including future acquisitions. That’s higher than the 20% target for fiscal 2023 that Salesforce announced a year ago. The company is trying to reduce sales and marketing as a percentage of revenue through more self-service and improved sales force productivity.

Salesforce shares are down 3% for the week and 42% for the year.

“There’s a lot going on in the market,” co-CEO Mark Benioff told CNBC’s Jim Cramer in an interview at Dreamforce. “Between a currency and a recession or a pandemic. All those things you’re harnessing a lot of forces.”

watch: Jim Cramer’s Interview with Marc Benioff at Dreamforce

Watch Jim Cramer's full interview with Salesforce co-CEO Marc Benioff

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