Central-bank monetary tightening rattles tech stocks
Central banks are turning more hawkish on raising interest rates - and tech stocks don't like it.
Global markets caught a bad case of the January blues. America’s S&P 500 ended last month down more than 5%, its worst monthly performance since March 2020 and its worst start to a year since 2009. Big tech firms led the rout, with the tech-heavy Nasdaq Composite falling almost 9%. Japan’s Nikkei 225 dropped 6.2%. The pan-European Stoxx 600 retreated 3.9% in January for its worst month since October 2020. The FTSE 100 ended the month up 1.1%, but the more domestically focused FTSE 250 finished down 6.6%.
The key theme so far this year has been “the hawkish pivot by multiple central banks”, say Henry Allen and Jim Reid of Deutsche Bank. On 31 December, interest-rate markets were pricing in about three increases by the US Federal Reserve this year. By the end of January, that number had risen to almost five. Money looks set to get tighter “much earlier than anticipated”.
That’s a headwind for fast-growing technology stocks in particular, says Patrick Hosking in The Times. Many investors are betting that firms with “innovative intellectual property” or dominant market positions but few or no profits so far can reap big rewards in the future. But higher interest rates make “expected profits in five, ten or fifteen years look dramatically less appealing than hard profits today”. With rates “so close to zero”, even “modest rises” have a huge impact.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
This month’s market “spasms” show that investors are having a difficult time coming “to terms with the end of the era of free money”, says The Economist. Some thought it would “pretty much last forever”. Hence corporations and housebuyers binged on debt during the pandemic, while government borrowing soared. We are about to find out just how vulnerable the world economy is to higher debt servicing costs.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Alex Rankine is Moneyweek's markets editor
-
Inflation forecast: where are prices heading next?
Updated inflation forecasts were published alongside Rachel Reeves’s Autumn Budget on 30 October. How quickly will prices rise over the next few years?
By Katie Williams Published
-
Ryanair profits dive as passengers hold out for lower fares – should you invest in airline stocks?
Europe’s largest low-cost airline said on Monday that net profits had fallen by 19% to €1.79 billion for the six months to the end of September
By Chris Newlands Published
-
Invest in Hilton Foods: a tasty UK food supplier
Hilton Foods is a keenly priced opportunity in an unglamorous sector
By Dr Matthew Partridge Published
-
HSBC stocks jump – is its cost-cutting plan already paying off?
HSBC's reorganisation has left questions unanswered, but otherwise the banking sector is in robust health
By Dr Matthew Partridge Published
-
Lock in an 11% yield with Sabre
Tips Sabre, a best-in-class company is undervalued due to low profits in the motor insurance industry. Should you invest?
By Rupert Hargreaves Published
-
James Halstead is a family firm going cheap but should you buy?
James Halstead will rebound from a weak patch, while tax changes would be a buying opportunity
By Jamie Ward Published
-
Babcock: an overlooked defence investment
Defence stocks have outperformed this year, but Babcock has been left behind
By Oojal Dhanjal Published
-
Byju’s – the startling rise and fall
India’s educational technology start-up Byju's attracted big-name backers and soared to vertiginous heights during Covid. It has now plummeted. What happened?
By Jane Lewis Published
-
Shares in luxury goods companies take a hit – will they recover?
Luxury goods companies have run into trouble, and the odds of a rapid recovery have receded. What next?
By Dr Matthew Partridge Published
-
United Airlines set for growth – should you invest?
Airlines have rebounded well after Covid, but United Airlines can soar higher
By Dr Matthew Partridge Published