Technical stocks brought in on Monday in global stock markets as expectations rose that the Federal Reserve would have to quickly lift incentives that boosted stock growth over the past two years.
The S&P 500 stock index fell more than 3 percent by noon in New York as the sell-off accelerated and extended to its fourth week. The Blu-chip U.S. benchmark is now more than 10 percent below this month’s record value, known as the correction.
Approximately 180 stocks in the index are now down more than 20 percent from recent highs, including high-profile companies such as Moderna, Twitter, Netflix and Salesforce. Last week, the S&P 500 suffered the biggest losses since a pandemic rocked global financial markets in March 2020.
During January, air was coming out of parts of the market that had previously flown high. The price of bitcoin has fallen another 3 percent, and the value of the cryptocurrency has now halved over the past two and a half months. Ark Cathie Wood Lead Fund, which has large stakes in electric car maker Tesla and cryptocurrency exchange Coinbase, fell 8 percent on Monday. The fund is down 58 percent from its highest level in history.
“In an environment like this, you would expect the most speculative names to be hit the hardest, and that’s what happens,” said David Kelly, chief market strategist for JPMorgan Asset Management.
Kelly pointed to the Fed’s hawk turn from the Fed, as well as concerns about the effect the Omicron coronavirus variant has had on economic activity and growing geopolitical tensions as Russia deploys troops on Ukraine’s border.
“Everyone understood that this market was far advanced, given the constant uncertainty, and it needed to be corrected,” he added.
Shares of major U.S. tech groups were among the hardest hit on Wall Street, pushing the tech-heavy Nasdaq Composite Index 4 percent lower.
The fall led the Nasdaq to more than 18 percent from a record high in November, with a decline approaching the so-called bear market – when losses exceed 20 percent. Already, 72 percent of the more than 3,600 shares in the index have fallen as much or more.
Investors are focused on the prospect that the Fed will tighten policy in setting rates meeting this week while the central bank seeks to tame rising inflation.
Goldman Sachs said over the weekend that it expects the Fed to signal that it will start raising interest rates from historic lows in March. The Bank also warned clients of “the risk that the Federal Open Market Committee will want to take some tightening measures at each meeting until [the inflation] changes in the picture ”and that it could increase rates more than four times this year.
Futures markets set prices at the world’s most influential central bank by raising the reference interest rate to more than 1 percent by December, after being close to zero since March 2020.
While higher interest rates increase the cost of borrowing for all firms, they also make projected corporate profits less valuable in investor valuation models, with an effect enlarged for technology and other growing companies whose top earnings are not expected in the years to come. Tesla and chipmaker Nvidia fell about 9 percent on Monday.
Shares of technology rose during the pandemic era due to the widespread view that social constraints have accelerated the advancement of social trends such as online shopping, telecommuting and gaming.
But speculative stocks of technology have achieved an “assessment [that] they don’t make sense in any investment environment, ”Michael Wilson, Morgan Stanley’s strategist, said in a note to clients, and they didn’t fall“ just because the Fed is turning. ”
In the U.S., the nonprofit technology stock index collected by Goldman this year has lost just under 30 percent of its value. The mother market on the Tokyo Stock Exchange for high-growth start-ups fell about 18 percent.
In Europe, the Stoxx Europe 600 regional stock index fell 3.8 percent to its lowest level since October. Its technology sub-index fell 5.8 percent, its biggest daily drop since October 2020, and its loss so far in January was more than 13 percent.
South Korea’s Kospi high-tech index fell 1.5 percent and Hong Kong’s Hang Seng Tech index fell 2.8 percent.
Vix, the so-called Wall Street Fear Gauge that measures the expected volatility of the S&P 500 blue-chip stock index, has risen to 38.6 points – the most since January 2021, when a madhouse of memes rocked Wall Street.
Additional reports by Jennifer Creery of Hong Kong and Leo Lewis in Tokyo