![]() ![]() It’s difficult to predict what the economy will look like months from now, as some analysts fear the rising interest rates could send the economy into a recession highlighted by a decline in spending-particularly for niche technology products. “That’s what happens when interest rates go up: the value of a company’s growth declines.” Concerns about the economy’s direction “Investors who look into the future and hold onto tech companies with growth potential aren’t receiving much cash flow,” says Bowersock Hill. The uncertainty and flurry of question marks is one reason investors are taking less risks on tech companies, which tend to perform worse when interest rates are higher and borrowing is more expensive. Still, analysts say the swift rise in interest rates has forced investors to rethink whether stocks that flourished in an environment with low interest rates would be able to continue to succeed in an environment with higher interest rates. “You could argue the Fed should have started doing this earlier,” says Bowersock Hill, “but it had no choice in order to maintain credibility and get inflation under control.” ![]() Their approach, several policymakers have said, is to get interest rates above 2% by the end of 2022 in a way that does not disturb markets. Moves like these can make Wall Street anxious, as investors fear it could make borrowing more expensive for corporations and households, thereby stifling economic growth and potentially leading to a recession.īut Fed officials are trying to avoid that. With inflation at its highest levels in 40 years, the Federal Reserve has begun to raise interest rates and will soon reduce its $9 trillion balance sheet to try to get prices back under control. “If you think cloud adoption, cyber security, enterprise spend, EV adoption, and buying iPhones are going away and falling off a cliff then go with your negative tech thesis!” “It’s easy to yell fire in a crowded theater when panic is in the air,” he wrote on Twitter. Dan Ives, managing director at Wedbush Securities, believes certain tech stocks like Apple and Microsoft have an upward 25-30% move for the rest of the year, while other e-commerce companies and work-from-home beneficiaries are likely to continue to crash. But some analysts believe the selloff is irrational and has gone too far, given the necessity of many tech products. “A lot of buyers have decided to sit out of the market for a while.”Īs investors weigh these risks, Wall Street is casting doubt on Big Tech’s ability to maintain the momentum needed to justify high valuations spurred by the pandemic’s unprecedented demand for new technology. “It’s a factor that people are not talking about enough,” says Bowersock Hill. Now, about half of those investors have left the stock market as more technology companies fail to meet earnings expectations and the market returns to reality. ![]() During the pandemic, about 25% of stocks were traded by these non-professional investors, propped up by online trading platforms like Robinhood as people worked from home. But persistent supply chain backlogs and elevated prices have left consumers with a strain in their pocketbooks, and there’s no clear answer for when that will change.Īdditionally, retail investors, who individually trade in the stock market, have started to lose their interest. These earnings drops are perhaps the biggest signs that the pandemic bubble has burst, as more consumers shift their spending habits from digital, online experiences to real-world experiences, says Emily Bowersock Hill, chief executive of Bowersock Capital Partners, a financial management firm. The market value of Zoom, a popular virtual conferencing company that people relied on to stay connected while working from home or attending school, has dropped to $26 billion, slightly less than its value before the pandemic. Shares of Peloton were down 13% by midday Tuesday, leaving the connected fitness brand with a market value of about $4 billion, down more than 90% from its high in early 2021 of $47 billion.Īnother pandemic darling, Netflix, saw its shares drop roughly 75% from its record-high in November after losing 200,000 subscribers in its first quarter, with projections to lose more than 2 million more in the second quarter due to growing competition. Peloton, one of the most popular companies in the early days of the pandemic, announced Tuesday morning it lost $757 million in the first three months of the year, significantly more than analysts predicted. Big Tech has shed over $1 trillion in value over the last three trading sessions as many of the world’s biggest companies are still reeling from the effects of not meeting earnings expectations.
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