The Nasdaq has given up more than a fourth of its value since the start of the year as pandemic favorites like Peloton, Netflix and Amazon endure sharp sell-offs. Software company Palantir and electric vehicle maker Rivian each lost more than 20 percent on the day.
The stock market’s recent nose dive is one of many indicators that economists are watching closely as they try to predict the economy’s broader direction. At 3.6 percent, the unemployment rate remains very low, but growth has slowed markedly and the economy actually contracted in the first three months of 2022. Technology companies led a broad market rally shortly after the pandemic began more than two years ago, but there has been a stark reversal in recent months.
Tech companies saw sales swell early in the coronavirus pandemic, as consumers reached for products and services that could keep them connected while they isolated at home. Some companies crammed five years of growth into two years. But now, as investors react to the prospect of a sluggish economy, big-name companies are also paying a price for high inflation and the possibility of a recession.
If consumers cut back on spending, investors don’t know whether streaming subscriptions, online shopping and the latest smartphones and gadgets will fall off shopping lists.
“It’s a perfect storm for investors with nowhere to hide as Fed hikes, inflation, geopolitical issues and worries about a recession are abound,” Dan Ives, managing director at Wedbush Securities, said Monday. “Tech stocks are getting crushed on this flight to safety, and it’s a bear-market mentality with the pain threshold being tested for tech investors.”
Apple kicked off 2022 by becoming the first company to be worth $3 trillion. But within just a few months, despite reporting record earnings last quarter, its share price has dropped more than 16 percent. Microsoft’s shares have fallen 20 percent, dragging its valuation below $2 trillion mark. Amazon tumbled 5 percent on Monday and is down more than 35 percent on the year. Facebook, meanwhile, is down 40 percent and has instituted a hiring freeze, which is viewed as a type of layoff in Silicon Valley. (Amazon founder Jeff Bezos owns The Washington Post.)
The broader S&P 500 index slid more than 3.2 percent, or more than 132 points, to a new low for 2022 after notching its longest weekly losing streak since 2011.
The Dow Jones industrial average gave up 653 points, or nearly 2 percent, heaping on more pain after the blue-chip index suffered its worst drubbing since the early days of the pandemic last week.
Cryptocurrencies, whose movements have paralleled the Nasdaq in recent months, also slumped. After a temporary Federal Reserve-induced boost last week carried it above $40,000, bitcoin was trading down nearly 9 percent Monday at $31,512. Ethereum, another popular cryptocurrency, tumbled 9.3 percent at $2,323. Coinbase, the cryptocurrency trading platform, saw its stock slump nearly 20 percent.
“Market psychology is driven by greed and fear,” said Wayne Wicker, chief investment officer at MissionSquare Retirement. “The volatility in markets today is driven by uncertainty in the future rate of inflation and the actions the Fed will take in its attempt to mute upward price increases.”
After an initially rosy reaction to the Fed’s interest rate hike on Wednesday — the second of seven that are forecast for 2022 — investors have been wringing their hands over the central bank’s approach to curbing inflation, which could make borrowing more expensive for corporations and households.
Fed officials are attempting to raise interest rates at a pace that doesn’t completely smother economic growth, a difficult balance to strike. If the economy cools too quickly, it could fall into a recession, which is generally defined as two consecutive quarters of decline.
Investors seem to be lacking confidence that the central bank can walk the line of reining in inflation without triggering a recession. Cboe’s VIX, known as “Wall Street’s fear gauge,” is up nearly 99.5 percent year-to-date, according to MarketWatch.
“You have to look pretty hard for positive catalysts in the current market environment,” said Brian Price, head of investment management at Commonwealth Financial Network. Although the outlook has become pessimistic, “any positive developments on the geopolitical front, or a weaker than expected [consumer price index] report later this week, could help turn the tide and see investors embrace risk assets once again.”
Tyson Foods raised its full-year sales outlook as it reported earnings and revenue that topped analyst expectations Monday, its performance buffeted by price increases that the company said it put in place to offset rising costs tied to labor and inflation.
“Although we continue to see inflationary pressures across the supply chain, we are working to drive costs down by continuing to increase our efficiency, productivity, and bringing more capacity on line,” Tyson chief executive Donnie King said in the company’s earnings report. Shares climbed 2.2 percent.
In Asia, markets closed sharply lower as the weight of China’s zero-tolerance coronavirus restrictions continued to weigh on the region’s business activity. Hong Kong’s Hang Seng Index closed down 3.8 percent, while Japan’s Nikkei 225 gave up 2.5 percent. The Shanghai Composite index was nearly flat.
European markets closed in the red across the board, with the benchmark Stoxx 600 index declining 2.9 percent.
“The continuing impact of Beijing’s zero-covid policy in China and concerns about the Fed’s next moves are helping to pile the pressure on markets,” said Russ Mould, investment director at AJ Bell. “The impact of Chinese restrictions was reflected in export growth hitting two-year lows in April — in effect back where we were near the start of the pandemic.”
Oil prices retreated after Japan became the latest Group of Seven nation to ban Russian oil imports. Brent crude, the international oil benchmark, edged 6.5 percent lower to trade around $105 per barrel. West Texas Intermediate crude, the U.S. benchmark, fell 6.8 percent to trade around $102.30 per barrel.
The unease has permeated bond markets, which briefly pushed the yield on the 10-year U.S. Treasury note past 3.185 percent Monday, its highest level since November 2018. Bond yields move inversely to prices.
Reed Albergotti contributed to this report.