This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Friday, September 16, 2022
Today’s newsletter is by Julie Hyman, anchor and correspondent at Yahoo Finance. Follow Julie on Twitter @juleshyman.
Another day, another tumble in tech stocks.
The disproportionate shellacking the sector has suffered recently has raised questions about why, exactly, technology is seemingly so vulnerable to rising interest rates.
The answer? Rate hikes are far from tech’s only problem.
Traditionally, rising rate periods have implications for many sectors — not just tech. When rates go up, it costs more for companies to borrow money to finance their businesses. It can also mean consumers have less disposable income because they, too, are paying more for mortgages and cars and credit cards. That latter point is especially pertinent now. Not only are homebuyers paying more than 6% interest for a 30-year mortgage for the first time since 2008 — they’re doing it while paying 13.5% more for groceries than a year ago.
In other words, we’re seeing the double whammy of inflation and rising interest rates. While the Federal Reserve has been raising rates to tamp down on inflation, the central bank still has a long way to go. Data released on Tuesday revealed that inflation remains high at 8.3%, though it moderated slightly in August.
Of course, this environment has taken its toll on the broader market. The S&P 500 has fallen 17% this year, beginning its decline before the Federal Reserve began raising interest rates on March 16.
Still, tech has gotten slammed harder. The S&P Info Tech Index — whose members include tech giants such as Apple (AAPL) and Microsoft (MSFT) — has fallen 25% this year. The Communications Services group, with Netflix (NFLX) and Apple (AAPL), has fallen even further — by 33%.
Let’s leave aside the modeling and nitty-gritty calculation of higher financing costs and whether Netflix is paying more to service its debt than energy companies (the best S&P 500 performers this year).
Some of tech’s underperformance might come down to vibe. Speaking to Yahoo Finance’s Brian Sozzi this week, Goldman Sachs Managing Director Eric Sheridan pointed out that tech is an inherently risky sector — and right now, investors crave safety because they’re uncertain of the Fed’s next moves.
“At the end of the day, what tech investors want is visibility into a calm economic environment,” Goldman Sachs Managing Director Eric Sheridan told our Brian Sozzi at his firm’s tech conference this week. In order for tech stocks to do well, he added, “You really need a stable macro environment where people feel comfortable putting more risk back on in their portfolio.”
It’s not just about feelings, though. Technology companies across the spectrum have seen lower demand recently as COVID-19 has eased and inspired consumers to re-join the physical world. Investors have had to readjust their expectations for the future growth of companies like Netflix and Meta (META).
Semiconductor makers have been hit in particular as they’ve struggled to adjust to the tightness in supply brought on during the pandemic, followed by the unwinding of that trend.
Paul Meeks, a veteran tech investor and portfolio manager at Independent Solutions Wealth Management, told Yahoo Finance that semiconductors are a key reason he’s underweight tech right now.
While Meeks believes in tech in the long term, he contends the current inventory correction puts them at risk right now. “I’m really worried now, because the key driver for the tech sector is semiconductors. The semiconductor stocks are in peril,” he said. “Semiconductor companies will be required to lead us out, and unfortunately, they are really sagging here. I don’t see near-term relief.”
While inflation and interest rates are two problems for tech, they’re clearly not the only challenges the sector faces right now. In the short term, at least, investors might continue to stay away.
10:00 a.m. ET: University of Michigan Consumer Sentiment, September preliminary (60.0 expected, 58.2 during prior month)
Manchester United (MANU)
FedEx issues ominous warning about the global economy, shares tumble
Amazon’s Thursday night football: Why it’s a ‘long-term play’ for the tech giant
Be mentally ready for a ‘lengthy’ period of slow economic growth, warns Goldman
‘I think we’ll be right’: Scaramucci dishes on SkyBridge deal with FTX inked during Andrea Bocelli concert in Italy
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
Related Quotes
The U.S. Treasury warning in three new reports that cryptocurrencies pose meaningful risks for consumers, investors, and businesses if not properly regulated. The government also recommended moving forward with work on central bank digital currency in the chance the U.S. decides to adopt it, but stopped short of recommending one.
(Bloomberg) — The surge in prices of lithium, the key battery material used to power electric cars, is seemingly unstoppable.Most Read from BloombergGermany Tightens Control Over Industry With Russian Oil GrabAdobe Near Deal for Online Design Startup Figma, Sources SayPutin Acknowledges Xi’s ‘Concerns’ on Ukraine, Showing TensionRay Dalio Does the Math: Rates at 4.5% Would Sink Stocks by 20%Patagonia Billionaire Who Gave Up Company Skirts $700 Million Tax HitLithium carbonate hit a fresh record
SEC Chair Gary Gensler was grilled by Republicans on both climate disclosure rule proposals and crypto regs at a hearing before the Senate Banking Committee this morning.
FedEx has blown three tires before the peak holiday shipping season, and chatter on the Street is that mighty Amazon may have played a role.
If history is any indication, one of the best ways to make long-term money in the stock market is by having the courage to buy stocks when they are largely out of favor. This is especially true of dividend stocks because when the prices decline, investors can lock in higher dividend yields for life. Certainly, investors should do their homework to ascertain the safety and reliability of a company’s dividends before buying on the basis of yield alone. Here are three real estate investment trusts
There is always a collective groan in the classroom when the teacher turns the lesson to a subject that no student likes. In that vein, sorry, but I need to talk about the bond market today. It has been absolutely awful this year.
FedEx withdrew its full year earnings guidance as macro trends 'significantly worsened,' sending share tumbling in extended trading.
You’re an investor who’s looking at retirement in just a few short years. You want to transition from growth investments to income-producing instruments. You want solid investments you can hang on to for several years, but you’re looking for a higher yield than what’s available with bank certificates of deposit or U.S. Treasuries. There are certainly good stocks trading on the exchanges that pay decent dividends, but you’re looking for the stability of real estate. If this sounds like you, here
(Bloomberg) — It’s an accepted investing axiom that if you want to know what’s happening with energy stocks, check oil prices. That is, until now.Most Read from BloombergTerra Co-Founder Do Kwon Faces Arrest Warrant in South KoreaNY Judge Who Doesn’t Tolerate ‘Nonsense’ May Be Named Special Master in Trump CaseStocks Rise as Dip Buyers Win Tug of War Over Fed: Markets WrapUS Inflation Tops Forecasts, Cementing Odds of Big Fed HikeXi Unlikely to Throw Putin a Lifeline as Ukraine Struggles MountS
(Bloomberg) — China’s biggest banks lowered their benchmark deposit rates across the board for the first time since 2015, a move designed to help them boost lending to shore up growth in the world’s second-largest economy.Most Read from BloombergAdobe Near Deal for Online Design Startup Figma, Sources SayPutin’s Options Narrow After Ukraine Scores Battlefield RoutEthereum Finishes Long-Awaited Energy-Saving ‘Merge’ UpgradeRay Dalio Does the Math: Rates at 4.5% Would Sink Stocks by 20%NY Judge W
BEIJING (Reuters) -China's economy showed surprising resilience in August, with faster-than-expected growth in factory output and retail sales shoring up a fragile recovery, but a deepening property slump weighed on the outlook. Industrial output grew 4.2% in August from a year earlier, the fastest pace since March, according to the National Bureau of Statistics (NBS). Retail sales rose 5.4% from a year ago, the quickest in six months and also beating forecasts for 3.5% growth and the 2.7% gain in July.
(Bloomberg) — Gold fell to the lowest since April 2020 amid expectations of more aggressive interest-rate hikes by the Federal Reserve despite a fresh round of mixed US data.Most Read from BloombergAdobe Near Deal for Online Design Startup Figma, Sources SayRay Dalio Does the Math: Rates at 4.5% Would Sink Stocks by 20%Putin Acknowledges Xi’s ‘Concerns’ on Ukraine, Showing TensionAdobe Tumbles After Deal to Buy Figma for About $20 BillionPutin’s Options Narrow After Ukraine Scores Battlefield R
These highly profitable companies offer sustainable competitive advantages that make them no-brainer buys.
Google CEO Sundar Pichai, speaking at the Code Conference last week, suggested the tech company needed to become 20% more efficient — a comment some in the industry took to mean headcount reductions could soon be on the table. TechCrunch has learned, and Google confirmed, the company is slashing projects at its in-house R&D division known as Area 120. Employees whose projects will not continue were told they'll need to find a new job within Google by the end of January 2023, or they'll be terminated.
The latest hurdle for an auto industry in the throws of an EV (electric vehicle) transformation is more higher prices. Bloomberg reports Lithium carbonate prices hit a new record high of 500,500 yuan, or $71,315, a ton today in China, this according to data from Asian Metal Inc. Lithium is a key component of battery cell technology used in everything from EVs to mobile phones.
Netflix (NFLX) witnessed a jump in share price last session on above-average trading volume. The latest trend in earnings estimate revisions for the stock suggests that there could be more strength down the road.
Don't expect a rip-roaring economy anytime soon, warns Goldman Sachs.
Stocks tumbled Friday morning, deepening a sell-off across U.S. equity markets that placed all three major averages on pace for a weekly loss. The moves came as traders weighed an ominous warning from FedEx about the global economy.
Drug/biotech companies are likely to see significant advances in innovation in 2023. In the Large-Cap Pharmaceuticals industry, AbbVie (ABBV), Novartis (NVS), Merck (MRK) and AstraZeneca (AZN) are worth retaining in your portfolio.
Home Depot (HD) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.
About Author
