Futures signaled further pain for tech stocks after Wednesday’s rout, adding to the nearly $1 trillion in value wiped out of the Nasdaq Composite Index this week already as a surge in U.S. bond yields spook investors.
Nasdaq 100 futures point to a further 0.4% drop on Thursday after the worst two-day rout since March, with Apple Inc., Tesla Inc. and Netflix Inc. falling again in pre-market trading. U.S. 10-year Treasury yields traded near 1.75%, the highest in about 10 months. Contracts on the S&P 500 were little changed in early morning trading in New York, showing signs of stabilization.
Expensive software makers, biotechs and newly minted stocks fell the most on Wednesday, while Cathie Wood’s ARK Innovation exchange-traded fund, the poster-child of hyper-growth names, tumbled 9%. The fund was down 0.6% in pre-market trading.
Higher rates reduce the present value of future earnings, weighing especially on shares of highly valued, fast-growing companies. Zscaler Inc., Datadog Inc., Peloton Interactive Inc. and Crowdstrike Holdings Inc. have lost between 10% and 18% this week. Megacaps haven’t been spared either: the NYSE FANG+ Index has fallen 2.8%, led by Nvidia Corp. and Microsoft Corp.
The first quarter “will bring at least a temporary reversal of the technology sector valuation boom that lifted companies such as Apple and Microsoft to the world’s largest market capitalizations,” said John Ricciardi, head of global asset allocation at Deuterium Capital Management. Since touching an historic $3 trillion market value on Jan. 3, Apple Inc. has been in decline.
eToro Global Market Strategist Ben Laidler said that while he’s positive on 2022, the year will see lower returns than 2021, with more volatility.
Hedge funds, which spent December unloading high-growth, high-valuation stocks, began the new year by jettisoning software and chipmakers at a furious pace. In the four sessions through Tuesday, these sales reached the highest level in dollar terms in more than 10 years, according to data compiled by Goldman Sachs Group Inc.’s prime broker.
A correction, however, might not be a given. Tech stocks took a similar beating in March, but bounced back right after.
“The dip in stocks seems a bit overdone,” UBS Global Wealth Management strategists led by Mark Haefele said in a note. “The normalization of Fed policy shouldn’t dent the outlook for corporate profit growth, which remains on a solid footing due to strong consumer spending, rising wages, and still easy access to capital.”
—With assistance from Nikos Chrysoloras.
This article was provided by Bloomberg News.