Pedestrians pass through the New York Stock Exchange.
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What started as a rebound in the third quarter turned into volatility for tech investors.
The Nasdaq Composite tumbled 5.1% this week after losing 5.5% the previous week. This marks the worst two-week extension for a tech-heavy index since it plunged more than 20% in March 2020 at the start of the Covid-19 pandemic in the US.
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With the third quarter coming to an end next week, the Nasdaq is poised to post losses for the third consecutive quarter unless it can erase what is now a 1.5% drop over the last five trading days of the period.
Investors have been dumping tech stocks since late 2021, betting that rising inflation and higher interest rates will have a big impact on the companies that have made the biggest gains during boom times. The Nasdaq is now above its two-year low hit in June.
Markets were hit by continued interest rate hikes by the Federal Reserve, which on Wednesday boosted benchmark interest rates by another three-quarters of a percentage point and signaled that it will continue to rise above the current level as it tries to bring down inflation from its highest levels since then. early eighties. The central bank raised the federal funds rate to the 3%-3.25% range, the highest level since early 2008, after moving 0.75 percentage points in a row.
Meanwhile, as higher interest rates pushed the 10-year Treasury yield to an 11-year high, the dollar was strengthening. This makes US products more expensive in other countries, to the detriment of technology companies that burden exports.
“This is a two-way punch to technology,” Jack Applin, chief investment officer at Cresset Capital, told CNBC’s TechCheck on Friday. “A strong dollar is not helping technology. Higher 10-year Treasury yields are not helping technology.”
Among the group of big-cap companies, Amazon had the worst week, dropping nearly 8%. Both Google’s Alphabet Alphabet and Facebook’s parent Meta are down about 4%. All three companies are in the midst of cost cuts or a hiring freeze, as they believe there is a combination of weak consumer demand, lukewarm advertising spending, and inflationary pressure on wages and products.
As CNBC reported on Friday, Alphabet CEO Sundar Pichai faced hot questions from employees at an all-hands meeting this week. Employees expressed concern about cost cuts and recent comments from Pichai regarding the need to improve productivity by 20%.
Tech earnings season is about a month away, and growth forecasts are muted. Alphabet is expected to report a single-digit revenue expansion after growing more than 40% in the prior year, while Meta is looking forward to a second consecutive quarter of lower sales. Apple’s growth is expected to come in at just over 6%. Amazon and Microsoft’s expectations are higher, at about 10% and 16%, respectively.
The last week has been particularly tough 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 risen in recent years before declining in 2022, some of the biggest declines were shares in GitLab (-16%), Bill.com (-15%), Asana (-14%), and Confluent (-13 %).
Sharing economic stocks this week
Cloud giant Salesforce held its annual Dreamforce conference this week in San Francisco. During the segment of the conference targeting financial metrics, the company announced a new long-term profitability goal that demonstrated its intent to operate more efficiently.
Salesforce aims to adjust operating margin by 25%, including future acquisitions, Chief Financial Officer Amy Weaver said. That’s higher than the 20% target Salesforce announced a year ago for fiscal year 2023. The company is trying to cut sales and marketing as a percentage of revenue, in part through more self-service efforts and through improved productivity for salespeople.
Salesforce shares are down 3% for the week and are down 42% for the year.
“There’s a lot of stuff going on in the market,” co-CEO Marc Benioff told CNBC’s Jim Kramer in an interview on DreamForce. “Between currencies and a recession or a pandemic. All of those things that you kind of navigate a lot of forces.”
Watch: Jim Kramer interviews Marc Benioff at Dreamforce
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