Widespread sell-offs have erased trillions of dollars in market cap from tech-heavy gauges, leaving investors souring stocks of everything from software and semiconductor companies to social-media giants.
The Nasdaq dropped 4.2% on Friday, making its loss for the month more than 13%, its worst performance since October 2008. The index is down 21% in 2022, its worst start to a year on record.
The broader S&P 500 has fallen for four consecutive weeks, shed 8.8% in April and brought its year-over-year loss to 13%. The Dow Jones Industrial Average fell 4.9% this month and is down more than 9% this year. Both the indices entered their worst months since March 2020.
The punitive declines in tech and growth stocks are a dramatic change from recent years. Investors have dug up stocks of some of the biggest tech companies that were stock-market darlings for the past decade and were driven by the index’s gains from pandemic lows.
Within a few months, some of the most reliable winners turned into losers. Netflix dropped 49% in April. Nvidia fell 32%. And PayPal Holdings declined 24%. All three stocks are down more than 35% in 2022.
Concerns about the Federal Reserve raising interest rates, rising inflation and the trajectory of the economy have driven stocks sharply below the record levels at which they started the year. Many pandemic-era wineries are also back on earth as consumer tastes have evolved since 2020. And lately, earnings season has been dotted with some high-profile disappointments, after reports provided head-spinning one-day stock moves.
“We are moving into a high volatility regime when fundamentals matter again. It looks like we are in a systemic shift,” said Ashish Vyas, Investment Director, Resonanz Capital.
FAANG shares, consisting of the popular quintet of Facebook parent meta platforms, Apple, Amazon.com, Netflix and Google parent Alphabet, have collectively lost more than $1 trillion in market value this month, according to a May 2012 trade by Facebook. Most since its inception.
Investors say they will keep an eye on the results of the next batch of earnings in the coming days as there are signs of slowing growth from other companies. According to FactSet, so far corporate profits are on track to grow 7% for the quarter, the lowest year-on-year earnings growth rate since the last quarter of 2020.
Amazon shares fell 14% on Friday, their biggest one-day drop since 2006, bringing their losses for the year to 26%. The company posted its first quarterly loss in seven years—a result that reflected macroeconomic trends related to a slowdown in online shopping, higher costs and supply-chain woes from inflation, and market panic over electric-vehicle startups.
Apple warned on Thursday that the resurgence of COVID-19 in China threatens to disrupt sales of up to $8 billion in the current quarter. Shares fell 3.7% on Friday and are down 11% for the year. Last week, Netflix shares fell more than 30% in a single session after the company’s earnings report showed the company lost subscribers. Moves in large technology companies can amplify the impact on major stock indexes due to their high weighting relative to other stocks.
Also driving volatility: Returns on traditionally secured government debt have climbed sharply. The yield on the benchmark 10-year Treasury note rose to 2.885% by the end of April, its biggest monthly gain since December 2009. These high returns have diminished the attractiveness of tech and growth stocks, creating stocks of firms that can have even higher returns. less attractive at times.
For much of the month, many traders and market watchers have been fixated on another matter: the drama surrounding Twitter. Tesla Chief Executive Elon Musk took a stake in the social-media company and then reached a deal to buy it. The talks during the entire process led to huge volatility in the shares of both the companies. Twitter shares jumped 27% in April to lead the S&P 500, while Tesla shares fell 19%.
Many investors have become more concerned about the recession, driving swings in global markets. The war in Ukraine has pushed commodity prices higher when inflation is already at a 40-year high. Meanwhile, the Fed faces a particularly difficult path to curb inflation by raising interest rates while not raising unemployment enough.
“It’s a massive escalation of recession fears,” said Jim Paulsen, chief investment strategist at The Leuthold Group. “I think there’s a lot more fear out there than is probably necessary.”
The latest GDP data showed the economy recently contracted for the first time since the start of the pandemic. Meanwhile, inflation in March rose at its fastest pace since 1982, as measured by the Federal Reserve’s preferred gauge.
Despite higher prices, US consumer spending for March rose 1.1% from the previous month, indicating that US households are absorbing higher inflation.
Some investors say the shares of some tech companies are looking attractive after the recent sell-off and would consider taking steps to buy the shares. The Nasdaq is now down 23% from its highs and is trading at levels not seen since 2020.
Friday’s losses in the stock market intensified at the closing bell, which some traders attributed to technical factors such as hedging activity and trading by leveraged exchange-traded products. The Dow fell more than 900 points, or 2.8%, and the S&P fell more than 3.6%.
Huge swings aren’t just limited to tech stocks. Investors around the world are concerned about the dramatic change in assets ranging from currencies to bonds.
In currency markets, the dollar is rising while the yen is falling. The yen, which is an elite haven for investors around the world, recently plunged to a 20-year low against the dollar, adding to typical dynamics in global markets and causing uneasiness among investors.
The WSJ dollar index has strengthened this year in anticipation of a Fed rate hike, which is expected to be faster and more aggressive than the Eurozone and Japan.