Tech stocks fell on Friday, capping a dismal month on Wall Street as inflation continues to rise and gas priceas well as aggressive Fed hikes, stoked recession fears.
The benchmark S&P 500 fell 3.6% and ended April with an 8.8% loss, its worst monthly decline since March 2020. The Dow fell 2.8%. The Nasdaq composite, heavily weighted in tech stocks, took the brunt of the damage this month, ending April with a 13.3% loss, its biggest monthly drop since the 2008 financial crisis.
A sharp drop in Amazon also weighed on indices after the internet retail giant posted its first loss since 2015.
“Today’s market action is another example of Big Tech indicators dragging the rest of the market down,” Charlie Ripley, senior investment strategist for Allianz Investment Management, said in an e-mail. mail. “Increasing cost pressures and an uncertain outlook from the biggest names in tech stirred up investors at the start of the weekend and investors are unlikely to be comfortable anytime soon, with the Fed widely expected to offer a 50 basis point hike accompanied by a hawkish message next week.”
Federal Reserve Chairman Jerome Powell said the central bank could raise short-term interest rates to double the usual rate rhythm in the upcoming meetings, which will start in less than two weeks. The Fed has already raised its overnight rate once, the first such hike since 2018.
Big Tech disappoints
Tech companies led the market lower all month as traders shunned the high-flying sector. The tech had made gigantic gains during the pandemic and is now starting to look overvalued, especially with interest rates set to rise sharply as the Fed steps up its fight against inflation. Investors spent much of April shifting money from big tech companies, whose stock values benefit from low interest rates, to areas considered less risky.
Internet retail giant Amazon fell 14.2%, the biggest drop in the S&P 500, after announcing its first quarterly financial loss since 2015 and giving investors a disappointing revenue forecast. Amazon’s weak update comes as Wall Street worries about a potential slowdown in consumer spending as well as rising inflation.
“It’s become a classic market for traders as volatility spikes and increasingly bearish headlines reverberate,” said Quincy Krosby, chief equity strategist for LPL Financial, on Friday. “Furthermore, disappointing guidance from tech giants Amazon and Apple has heightened fears that a decidedly more hawkish Fed, coupled with still unresolved supply chain issues, and rising oil prices energy only raise hopes of a more elusive Fed “soft landing.”
Major indexes swung between declines and rallies throughout the week as the latest round of corporate earnings hit the market with a bang. Investors scrutinized a particularly heavy batch of financial results from big tech companies, industrial firms and retailers.
The Fed is holding back
Much of the anxiety on Wall Street in April focused on how quickly the Fed will raise its benchmark interest rate and whether an aggressive round of hikes will dampen economic growth.
The relentless rise in inflation prompted central banks to raise interest rates to lessen the impact on businesses and consumers. The Fed Chairman indicated that the central bank may raise short-term interest rates to double the usual amount at upcoming meetings, starting next week. It has already raised its overnight rate once, the first such increase since 2018, and Wall Street expects several big increases in the coming months.
The harsh medicine the Federal Reserve uses in its fight against inflation – high interest rates – will increase borrowing costs across the board for people who buy cars, use credit cards and take out mortgages to buy houses.
Price for everything from food to gas increased as the economy recovering from the pandemic and there was a big disconnect between higher demand and lagging supply. The Russian invasion of Ukraine has only heightened concerns about inflation, as it drives up prices for oil, natural gas, wheat and corn.
The S&P 500 consumer staples sector, which includes many home and personal goods makers, is on track to be the only sector in the benchmark to post gains in April. Other safe sectors, such as utilities, held up better than the broader market, while technology and communications stocks were among the biggest losers.
The Commerce Department reported Friday that an inflation gauge closely watched by the Federal Reserve jumped 6.6% in March from a year ago, the highest 12-month jump in four decades and further proof that soaring prices are putting pressure on household budgets and the health of the economy.
Bond yields rose on hot inflation readings. The yield on the 10-year Treasury fell from 2.85% to 2.89%.
