A higher level of expected inflation (+8.3% in April over a year in the US) accelerated the slide of the market on Wednesday and the stronger of technology stocks. Year-to-date, the Nasdaq is down 27% versus 17% for the S&P 500 index. Despite the lower decline, the latter is facing its worst start to the year since 1932.
Markets fear that measures taken by central banks to combat inflation could lead to a recession or at least a sharp economic downturn. A fear has increased due to the impact of the war in Ukraine and the risks posed by the severe confinement to the Chinese economy.
Rising interest rates penalize all equities because the higher they are, the more they weigh on the company’s future profits. This penalizes technology and growth stocks more than those considered defensive of equities or assets.
Due to liquidity and covid impact, the securities of companies that had soared plunged just as ruthlessly. Symbolically, Zoom shares are worth just $85 against a high of $559 in October 2020. On the GAFAM front, Apple is doing best, down 20% year-to-date versus over 40% for Meta (Facebook). But symbolically, the Apple firm lost the world’s first capital crown on Wednesday, reclaimed by oil giant Saudi Aramco.
In this serious correction, big technology investment funds are drinking the cup. Star fund Arc Innovation, managed by Cathy Wood, has lost 55% since the start of the year and 70% since its peak in February 2021. SoftBank announced a $27 billion loss on its Vision Fund for the fiscal year ending in March .
US tech companies that have invested in the stocks of other companies are also paying big. According to CNBC, they lost $17 billion in the first quarter and the second is looking even worse.
Same failure in cryptocurrency. Its star, Bitcoin, fell nearly 30% in a week to return to $26,000, its lowest level since December 2020. This hyper-speculative bug went up in smoke by $200 billion on Wednesday alone.
How far will technology stocks go down? The Nasdaq has already fallen below 11,300 points from an all-time high of 16,212 points last November. It reached a much lower point of 6,631 points in March 2020 as the health crisis began. Moreover, the index is up 50% in three years and 290% in ten years. But memories of the bursting of the Internet bubble in 2000 are now fresh in everyone’s mind.