The prospect of a further rise in key interest rates in the United States this year is certainly not helping technology stocks yet. On the contrary, the Nasdaq stock index, in which the technology giants are represented, has been losing just over seven percent since the beginning of this year. According to BofA Securities, which falls under the Bank of America financial institution, investors are turning away from technology companies at the beginning of the new year.
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An analyst survey of January 7-13 showed that investment fund managers had reduced their referrals to their lowest level since December 2008. That is, since the world was facing a deep financial crisis. Investors who manage more than $ 1.2 trillion (CZK 25.7 trillion) in assets participated in the survey.
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A separate monthly survey conducted by the Deutsche Bank financial institution then showed that the vast majority of respondents believe that the shares of American technology companies are strongly overvalued. Investors’ pessimism is also driven by US central bank (Fed) policy and rising bond yields.
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The yield on a key US government bond with a maturity of ten years climbed above 1.83 percent on Tuesday. He got there in two years at the most. Yields move in the opposite direction to prices, so a higher yield is the result of a fall in price. This in turn affects the Fed’s monetary policy.
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Higher-than-expected inflation remains a predominant factor in these concerns. The contradiction, which is the more aggressive Fed, but aroused much greater concern among respondents this month.
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“Higher-than-expected inflation remains a predominant factor in these concerns. The contradiction, which is the more aggressive Fed, but aroused much greater concern among respondents this month, “Deutsche Bank analysts said, according to Reuters. Raising interest rates is generally not good for technology companies because it makes their loans more expensive.
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The US Federal Reserve will discuss its monetary policy next Wednesday. As expected, the bank indicates that it will raise interest rates for the first time since the coronavirus pandemic.
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Investors liked the shares of technology companies especially during the covidu-19 pandemic. The need to stay at home has benefited Internet companies in particular, such as Zoom Video Communications, a provider of video calling software.
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The US stock market Nasdaq, which holds many high-tech stocks, strengthened by about 21 percent last year. It has grown by more than 400 percent in the last ten years.
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In response to the expected increase in interest rates in several countries and the associated credit problems for technology companies, investors focused on other stocks, especially in Europe. They are looking for cyclical banking stocks, commodities or shares of industrial enterprises – sectors that should benefit from higher interest rates.
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Markets are nervous
If we look at the current volatility of US indices, it is clear that the markets are nervous, which was confirmed for SZ Business by Jiří Tyleček, an analyst at X-Trade Brokers. Volatility of stocks and other assets most often tends to increase in times of uncertainty or fear. If the price of a given instrument falls, it is usually much faster than in the case of its growth.
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In times of uncertainty, investors often panic and get rid of positions, which can be seen in the Nasdaq index. According to Tyleček, the markets are currently nervous for several reasons. “The main thing is the shift in the US central bank’s monetary policy, which is pushing up bond yields,” says the analyst.
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Situ The situation affects technology stocks the most – their value depends a lot on the estimated future cash flow, which is discounted to the present, and on small companies, which have a higher debt-to-equity ratio (ratio of creditors ‘capital to shareholders’ capital – note red.), ”Says Tyleček.
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According to the analyst, the most declining technologies are companies with weak economic reports – often at a loss with unpredictable sales development. “In addition, the main indices were close to the all-time high and have not experienced a significant sell-off since the coronavirus decline,” concludes Tyleček from X-Trade Brokers.
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