This earnings season has been nothing short of unpredictable with some big-name tech stocks selling off and others being some of the top performers. This had led the tech-heavy Nasdaq into one of its most tumultuous stretches ever.
In fact, January was the worst month for the Nasdaq since 2008, with shares of Amazon down around 10%, Microsoft off 8%, and Google and Facebook parent Meta Platforms dropping 7%.
And with the same underlying issues that have plagued tech stock for months still in play—higher interest rates, soaring inflation, chip shortages, the pandemic—the volatility is expected to continue.
How Are Tech Stocks Doing?
The Nasdaq, which was the biggest winner during COVID-19, has lost favour with Wall Street, as the era of free money and cheap borrowing is set to end. During the pandemic the Federal Reserve helped juice the U.S. economy by flooding the markets with cash, holding its key lending rate near zero, and purchasing close to $5 trillion in securities.
Despite being faced with the worst economic crisis in 100 years, stocks were trading at record high. With the U.S. economy running on all cylinders the Fed is poised to cut off its emergency support and focus its attention on taming red-hot inflation that is at its highest levels since 1982.
That means there’s a reckoning for tech stocks as investors revaluate their strategies and portfolio and scrutinize a companies technicals/valuations more closely, which is something investors were willing to ignore during the pandemic.
What Happened to Facebook’s Stock?
This played out recently when Meta Platforms Inc announced its first-ever decline in the number of daily users and weaker-than-expected revenue forecast. Investors sent Meta stocks crashing lower on February 2, down more than 25% in after-hours trading. It was the company’s biggest one-day drop ever, wiping more than $230 billion from its market cap. To put that number into perspective, when adjusted for inflation, that’s equal to the entire stock market’s loss on Black Tuesday in October 1929.
Other tech stocks contributed to the broader stock market sell-off after reporting disappointing results, including PayPal, Spotify, and Netflix.
That doesn’t mean investors are wary of all big tech stocks. The following day Amazon shares surged more than 15% after the company announced its fourth-quarter profit had doubled. Snap, Pinterest, Microsoft, and Apple also reported better-than-expected earnings, which helped send shares, and the broader Nasdaq higher.
Investors like consistency which is why they’re being more selective and nervous about tech stocks that provide a glum forecast. On the one hand, this is good for more established, big tech stocks. On the other, the recent sell-off of tech stocks means some small- to midcap tech stocks have more palatable valuations.
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