The widespread weakness in tech companies has been fueled by concerns about inflation and rising interest rates. The Nasdaq 100 index has fallen more than 7% in the last four days and is on track for a sixth consecutive week in the negative, its longest losing streak since 2012.
“Sentiment is very depressed, and uncertainty around inflation will continue to complicate the picture,” said Keith Lerner, co-chief investment officer and chief market strategist at Truist Advisory Services. “Even though prices are getting cheaper, we need a spark to start moving up, and I don’t see any.”
While the Nasdaq 100, heavily weighted in tech stocks, has been under pressure all year, Apple’s decline has been relatively recent. The stock has lost almost 10% this week alone amid growing concerns about an economic slowdown. It’s a sudden turnaround for Apple from about six weeks ago, when the stock was trading near its record high.
The stock is on track for a seventh consecutive weekly decline, which would represent the longest losing streak since November 2018.
Apple continues to face supply chain challenges, which the company predicted would cost $4 billion to $8 billion in revenue during the current quarter. Still, its strong balance sheet, hefty profits and loyal customer base have partially insulated it from the turmoil in the tech sector. The stock continues to outperform the Nasdaq 100 index, which has lost almost 30% of its value this year, compared with Apple’s drop of around 19% in the same period.
Lerner suggested that the weakness of Apple and other big tech companies could be a sign that the markets are bottoming. “You want to see the bigs fall to find a good bottom, so this could be positive from that perspective, although we can always be more oversold.”
Why do technology fall?
After being the stellar participants in the pandemic when a global fever was unleashed in the demand for its services and products, now that the confinements are over, the demand is reduced, or it no longer increases exponentially as it did before.
In the specific case of interest rates, inflation is forcing the Federal Reserve to raise them at a rate not seen in decades. So, the higher rates rise, investors discount the value of future income streams from tech companiesbecause inflation significantly reduces consumption, especially of those products that are not essential for survival. While technology plays an important role, it still does not and will not overtake the relevance of food.
Finally, technology companies continue to be impacted by the effects of covid, added to the invasion of Ukraine and interruptions in supply chains.
Source: Ambito
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