Pedestrians walk past the New York Stock Exchange.
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What started as a rebound in the third quarter has turned into a flop for tech investors.
The Nasdaq fell 5.1% this week after losing 5.5% the previous week. That’s the worst two-week stretch for the tech-heavy index since it plunged more than 20% in March 2020 when the Covid-19 pandemic began in the US.
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With the third quarter set to end next week, the Nasdaq is poised for a third straight quarter of losses if it fails to erase what is now a 1.5% decline over the last five trading days of the period.
Investors have been offloading tech stocks since the end of 2021, betting that rising inflation and higher interest rates will have an extraordinary impact on companies that have recovered the most from boom times. The Nasdaq is now just above its two-year low set in June.
The markets continued this week with the action of the Fed, which on Wednesday they raised base interest rates by another three-quarters of a percentage point and signaled it would continue to rise well above current levels as it seeks to reduce inflation from the highest levels since the early 1980s. The central bank raised its federal funds rate to a range of 3-3.25%, the highest since early 2008, after a third consecutive 0.75 percentage point move.
Meanwhile, as rising rates pushed the 10-year Treasury yield to an 11-year high, the dollar was strengthening. This makes American products more expensive in other countries, hurting technology companies that have large exports.
“This is a one-two punch for technology,” Jack Ablin, chief investment officer at Cresset Capital, told CNBC’s “TehcCheck” Friday. “A strong dollar doesn’t help tech. High 10-year Treasury yields don’t help tech.”
Among a group of large-cap companies, Amazon had its worst week, down nearly 8%. Google parent Alphabet and Facebook parent Target each fell about 4%. All three companies are in the midst of cost-cutting or hiring freezes as they anticipate some combination of weakening consumer demand, tepid ad spending and inflationary pressures on wages and products.
Like CNBC reported on Friday CEO of Alphabet Sundar Pichai faced heated questions from staff at an all-hands meeting this week. Employees expressed concerns about cost cutting and recent comments from Pichai regarding the need to increase productivity by 20%.
Tech earnings season is about a month away, and growth expectations are muted. Alphabet is expected to post a single-digit increase in revenue after growing more than 40% a year earlier, while Meta is looking at a second straight quarter of revenue declines. from Apple Growth is expected to be just above 6%. Expectations for Amazon and Microsoft are higher, about 10% and 16% respectively.
The past week has been particularly rough for some companies in the sharing economy. Airbnb, Uber, Lyft and DoorDash all suffered declines of between 12% and 14%. In the cloud software market, which has surged in recent years before collapsing in 2022, some of the steepest declines have been in stocks GitLab (-16%), Bill.com (-15%), Asana (-14%) a Converging (-13 %).
Share economy shares this week
cloud giant Salesforce held its annual Dreamforce conference in San Francisco this week. During the financial metrics portion of the conference call, the company announced a new long-term profitability goal which showed its determination to operate more efficiently.
Salesforce focuses on a 25% adjusted operating margin, including future acquisitions, said CFO Amy Weaver. That’s more than the 20% target announced by Salesforce a year ago for its fiscal year 2023. The company is trying to squeeze sales and marketing as a percentage of revenue, in part through more self-service efforts and by improving salesperson productivity.
Salesforce shares are down 3% for the week and down 42% for the year.
“There’s so much going on in the market,” co-CEO Marc Benioff told CNBC’s Jim Cramer in an interview at Dreamforce. “Between currencies and a recession or a pandemic. You’re driving all these things with a lot of forces.”