Technology stocks are headed for their worst December since the bursting of the dotcom bubble two decades ago as optimism about potential relief from Federal Reserve interest-rate hikes fades on signs of labor-market strength.
The Nasdaq 100 Index sank 2.5% Thursday after a report showed US jobless claims remained near historically low levels, underscoring that the Fed has plenty of reasons to keep tightening policy. Separate data showed a key inflation gauge was up slightly from the prior reading.
Add to that weak results from chipmaker Micron Technologies Inc., and the session turned into a brutal one for equity bulls, who are again fretting over the risk of a potential recession.
The tech benchmark, laden with companies like Apple Inc. and Microsoft Corp., has dropped 8.93% this month, more than erasing a November rally fueled by hopes that cooling inflation would set the stage for even slower Fed hikes and potentially a pause next year. It’s down about one-third this year.
The economic figures “were hotter than the market was hoping for, so now we have to contend with the notion the Fed will stay aggressive raising rates,” said Joe Gilbert, a portfolio manager for Integrity Asset Management. “This along with earnings reports from cyclical companies that suggest the forward outlook is weakening substantially, and a policy error by the Fed is becoming more likely everyday. This points to a risk-off market.”
The angst is rippling beyond the tech sector. The S&P 500 dropped 1.5% on Thursday and is down about 6% this month. Tech stocks, however, have suffered the most this year amid soaring inflation as their valuations are more sensitive to higher interest rates. The Fed hiked rates last week for the seventh straight meeting.
Among the worst performers on the Nasdaq 100 this month are Tesla Inc., whose shares have dropped more than 30% amid concerns about flagging demand for its electric vehicles and the preoccupation of its chief executive, Elon Musk, with Twitter Inc. Chipmakers Marvell Technology Inc. and Advanced Micro Devices Inc. have fallen roughly 20%.
This month’s selloff would have to get worse to exceed losses suffered in December 2002 when the benchmark dropped 12%. There may be some good news for bulls looking back at how things played out 20 years ago: The Nasdaq 100 had already bottomed in October 2002 after plunging 83% from a March 2000 peak.
But investors don’t appear to be signaling confidence that pattern will emerge again, even though the benchmark is still trading above its closing low for the year set on Nov. 3.
Bearish interest in technology stocks — the stock market darlings for most of the last decade — shows few signs of subsiding. Short interest in the Invesco QQQ Trust Series 1 exchange-traded fund is hovering at 6.2% of shares outstanding, a level last seen in 2012, data compiled by IHS Markit show.
Virtually all stocks in the Nasdaq 100 slumped on Thursday, with trading volumes soaring 14% above their 30-day average, hardly the typical pre-holiday doldrums. More than a tenth of the stocks in the 100-member benchmark hit 52-week lows on Thursday, including Amazon.com Inc., Airbnb Inc., PayPal Holdings Inc. and Zoom Video Communications Inc.
Meanwhile, a gauge of projected volatility in technology stocks, the Chicago Board Options Exchange NDX Volatility Index, jumped from the lowest levels since early December.
A further selloff could ramp up pressure on the few remaining investors with long positions to throw in the towel, Citigroup Inc. strategists including Chris Montagu said on Monday.
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