Technology stocks are flooded with red, the index is already losing a fifth of its value

The day after the US Federal Reserve (Fed) raised its key interest rate by half a percentage point in an effort to stop rising inflation, investors sold out technology stocks, which are generally considered to be drivers of market growth. According to analysts, investors are worried that the US economy is facing dark times. For US stocks, Thursday was the worst day of the year so far.

Stock markets initially responded positively to the Fed’s comments and closed Wednesday’s trading with significant growth. Central Bank Chairman Jerome Powell said the committee was not considering raising rates by more than half a percentage point. But a day later, investors interpreted the same number more pessimistically, which led to a negative mood in the stock markets and big sell-offs, which continue during Friday’s trading. The Nasdaq index lost about 1.7 percent around 4:30 pm CET. The broader S&P 500 index depreciated slightly less.

“The euphoria after Thursday’s Fed meeting turned out to be extremely short-lived. Investors quickly reconsidered the tone of the central bankers’ meeting. Rising rates will continue and the stock exchanges lack positive growth catalysts, “said Tomáš Pfeiler, an analyst at Cyrrus, for SZ Byznys.

According to him, the development is reminiscent of the situation last December, when the shares first strengthened immediately after the meeting and handed over all profits in the following trading session.

“The situation can be interpreted as meaning that investors are still struggling to properly price the effects of the ongoing sharp turnaround in monetary policy on stocks and other risky assets. In the foreseeable future, we will witness similarly violent movements in both directions on the stock exchanges, ”adds Pfeiler.

“It simply came to our notice then. But a turn down like Thursday’s is really extraordinary, “Randy Frederick, executive director of trading and derivatives at Schwab, told CNBC news.

“Investors are now not looking at financial indicators such as the company’s profits, it is more a question of market sentiment,” analyst Megan Horneman of Verdence Capital Advisors told Reuters.

The big technology companies went through a massive sell-off with the bee with Amazon, which depreciated eight percent. Meta, which owns the social network Facebook, also lost about seven percent. Shares of Apple then fell by almost six percent, the parent company Google Alphabet by five percent.

Investors also largely lost stock in e-commerce. Shopify, which prospered during the coronavirus pandemic, reported unsatisfactory results and sales in the first quarter, which worried investors. As a result, shares fell 15 percent. Ebay also suffered a double-digit decline after the quarterly results were announced.

The shift away from technology stocks began at the end of last year, when rising inflation and the threat of rate hikes diverted investors to energy and financial services. Another blow was Russia’s February invasion of Ukraine, raising fears of supply chain restrictions.

We’re still not out of the worst.

Zach Stein, Chief Investment Officer of Carbon Collective

The first quarter of this year was the worst for the Nasdaq since 2020, when the onset of the pandemic triggered an economic downturn. The US index, which includes major technology players, fell 9.1 percent in the first three months. Since the beginning of the year, the Nasdaq has been down more than 20 percent, meeting the definition of a bear or declining market.

Some of the “winners” of the pandemic have been experiencing really dramatic declines since the beginning of January. For example, Zoom, which provides video calling and conferencing software, is writing off 45 percent. The popular Netflix streaming platform is losing almost 70 percent.

“We are still not out of the worst, there is still too much uncertainty about whether the Fed’s actions will curb inflation without causing a recession,” Zach Stein, chief investment officer at Carbon Collective, told The Washington Post.

Risk aversion also affected the cryptocurrency sector on Thursday. Bitcoin fell nearly eight percent during Thursday’s trading to $ 35,642 (about $ 876,000). Other cryptocurrencies also weakened.

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