Home Business Why tech stocks may continue to get pummeled

Why tech stocks may continue to get pummeled

Why tech stocks may continue to get pummeled

If tech investors were looking for a reprieve, they may have to wait a little while longer.

“What tech investors want is visibility into a calm economic environment,” Goldman Sachs managing director Eric Sheridan told Yahoo Finance Live at the Goldman Sachs Communacopia + Technology Conference on Tuesday.

“Tech, by its very nature, is a risk-premium, risk-on category of investing. And when people are uncertain about what’s the rate of inflation, what’s happening in the macroeconomic environment, what is the Fed going to do — it all trickles into the conversation and it creates uncertainty,” Sheridan said. “As a result, risk comes off, and names sell off in the group. So you really need a stable macro environment where people feel comfortable putting more risk back on in their portfolio.”

And investors in tech were rocked yet again on Tuesday by, you guessed it, a fresh dose of economic uncertainty.

The August Consumer Price Index (CPI) showed prices rose 8.3% over the prior year and 0.1% over the prior month, the Bureau of Labor Statistics reported today. Economists had expected an 8.1% increase in inflation over last year and a decline of 0.1% over the prior month.

The Nasdaq Composite tanked nearly 4% in early afternoon trading.

Popular tech stocks such as Meta, AMD, Intel, Alphabet, Nvidia, Microsoft, Amazon and Spotify were pounded on the news, as the Yahoo Finance “Trending Ticker” page shows.

Another hot read on inflation ratcheted up fears of an even faster pace of interest rate hikes from the Federal Reserve.

Higher interest rates have the side effect of raising the cost of capital for many tech companies that thrive on new funding to spur growth. Further, with rates on a steeper trajectory the economy could slow quicker than expected and put added pressure on still elevated tech valuation multiples.

Sheridan says the vibe at the conference has been more positive than the market’s reaction suggests. But all eyes for tech investors are likely to remain on the outlook for interest rates and the economy.

“Ironically, what we’re hearing is consumer demand is fine. So there’s sort of this dynamic of what is the Fed going to do, which is away from fundamental investing and how it impacts the economy 369 months down the road. But listening to companies you would not get the sense that the U.S. consumer is acting like we’re already in a recession by a long shot,” Sheridan added.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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