What started as a recovery in the third quarter turned into a bust for tech investors.
The Nasdaq Composite fell 5.1% this week after losing 5.5% the previous week. This marks the worst two-week period for the tech 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 due to end next week, the Nasdaq is poised for a third straight quarter of losses unless it can erase the current 1.5% decline 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 huge impact on the companies that rose the most during the boom. The Nasdaq is now just above its two-year low set in June.
Markets were hit by continued interest rate hikes by the Fed, which on Wednesday raised benchmark interest rates by another three-quarters of a percentage point and signaled they would continue to rise well above current levels as it tries to take inflation off record highs. its levels since the early 1980s. The central bank raised its federal funds rate to a range of 3%-3.25%, the highest level since early 2008, after a third consecutive 0.75 percentage point move.
Meanwhile, as rising interest rates pushed the 10-year Treasury yield to an 11-year high, the dollar strengthened. This makes American products more expensive in other countries, which hurts technology companies that have a lot of exports.
“It’s a one-two punch on technology,” Jack Ablin, chief investment officer of Cresset Capital, told CNBC’s “TechCheck” on Friday. “A strong dollar does not help technology. The high yield on 10-year Treasuries is not helping technology.”
Among the group of mega-caps, Amazon had the worst week, falling nearly 8%. Google parent Alphabet and Facebook parent Meta tumbled about 4%. All three companies are in the process of cutting costs or freezing hiring as they grapple with some combination of weakening consumer demand, low advertising spending and inflationary pressures on wages and products.
As CNBC reported Friday, Alphabet CEO Sundar Pichai faced heated questions from employees at an all-hands meeting this week. Employees expressed concern about cost cuts and recent comments from Pichai about the need to improve productivity by 20%.
Tech earnings season is about a month away, and growth expectations are muted. Alphabet is expected to report a single-digit increase in revenue after growth of more than 40% a year earlier, while Meta expects a second straight quarter of sales declines. Apple’s growth is expected to reach just over 6%. Expectations for Amazon and Microsoft are higher, at around 10% and 16% respectively.
The past week has been particularly tough for some companies in the sharing economy. Airbnb, Uber, Lyft and DoorDash saw declines of between 12% and 14%. In the cloud software market, which has soared in recent years before collapsing in 2022, some of the steepest decliners were in shares of GitLab (-16%), Bill.com (-15%), Asana (-14 %) and Confluent (-13%).
Shares of the sharing economy this week
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Cloud giant Salesforce held its annual Dreamforce conference this week in San Francisco. During the financials portion of the conference call, the company announced a new long-term profitability goal that showed its determination to operate more efficiently.
Salesforce is aiming for a 25 percent adjusted operating margin, including future acquisitions, Chief Financial Officer Amy Weaver said. That’s up from the 20% goal Salesforce announced a year ago for fiscal 2023. The company is trying to reduce sales and marketing as a percentage of revenue, in part through more self-service efforts and by improving salesperson productivity.
Shares of Salesforce fell 3% for the week and are down 42% for the year.
“There’s so much going on in the market,” co-CEO Marc Benioff told CNBC’s Jim Cramer in an interview at Dreamforce. “Between currencies and recession or pandemic. All these things where you kind of manage a lot of power.’
WATCHING: Jim Cramer’s interview with Marc Benioff at Dreamforce