A string of five monthly gains in US technology stocks has hit a wall in August as Treasury-market turbulence and a hot labor-market reading sap investor optimism.
(Bloomberg) — A string of five monthly gains in US technology stocks has hit a wall in August as Treasury-market turbulence and a hot labor-market reading sap investor optimism.
The tech-heavy Nasdaq 100 sank 2% Wednesday on track for its worst day in two weeks in a broad selloff that ensnared giants like Apple Inc. to chipmakers and more speculative corners of the sector such as profitless companies. Among the culprits was a surge in Treasury yields that took the 10-year rate to 4.12%, the highest since November.
Bonds sold off overnight after Fitch Ratings unexpectedly downgraded US sovereign debt, but the rout intensified with the US Treasury boosting the size of its quarterly debt issuance. Adding to tech sector woes was a private payrolls report showing companies added more jobs than anticipated, rekindling fears the Federal Reserve may need to keep borrowing costs higher for longer.
The sharp declines Wednesday halted, for now, a tech rally that took the Nasdaq 100 within 5% of its all-time high. Bets that advances in artificial intelligence would drive an investment boom and deliver riches to the companies that make anything from computer chips to the software that powers the new tools sent valuations soaring to the highest since early 2022.
“If the 10-year Treasury yield continues to climb well above 4% on this rating change in the coming days, that would force equities to reprice more broadly, particularly long-duration tech and growth stocks that are based on future profit growth,” said Quincy Krosby, chief global strategist at LPL Financial.
Here’s a closer look at some of the areas within tech that were under pressure.
The NYSE FANG+ Index, which includes tech giants like Apple, Microsoft Corp. and Alphabet Inc. fell as much as 4.3%, the most since July 20.
All 30 stocks in the Philadelphia semiconductor index fell on Wednesday, with Advanced Micro Devices Inc. pacing declines.
The selloff was more pronounced in more speculative corners of the market. A basket of profitless tech firms tracked by Goldman Sachs tumbled as much as 7.2%, the worst decline since November 2022.
The Nasdaq 100’s price to projected profit ratio hit the highest since early 2022 last month.
–With assistance from Matt Turner.
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