Tech Stocks Are Way Down. Why Rising Interest Rates Are the Culprit.
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Here's your money briefing for Tuesday, November 1st. I'm J.R. Whelan for The Wall Street Journal. If you've got some tech stocks in your portfolio or 401k, all that red has been getting redder. Shares of the largest U.S. technology firms have fallen at a pace not seen since the tech bubble burst back in 2000.
A lot of that is because the Federal Reserve's interest rate increases this year have changed how investors approach the market. particularly the technology stock sector and other growthier parts of the market.
Coming up, WSJ Markets reporter Hannah Miao will join us to explain why tech stocks have reacted so negatively to rising interest rates, among other factors. Plus, she'll discuss where investors could look elsewhere in the market to find gains. That's after the break.
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What triggered the episode and why are tech stocks down this year?
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Tech stocks were the centerpiece of the stock market rally over the past several years, but economic uncertainty and rising interest rates in 2022 have resulted in a reversal of fortune for the sector, with the tech-focused Nasdaq index's value down this year by about $8 trillion. WSJ Markets reporter Hannah Miao joins us to explain why tech stocks have reacted so negatively to economic conditions and what the outlook is going forward. Hey, Hannah, thank you very much for being with us.
Thanks for having me.
So Hannah, we saw sharp rallies among tech stocks for several years leading up to 2022. What fueled those increases?
For some time, it seemed like tech stocks were among the few ways investors could get growth while the economy was expanding relatively slowly. And of course, in the last few years, when the pandemic shifted a lot of the world to working online and virtually, these tech companies benefited from that transition and appeared to be somewhat immune to the economic downturn. And so as these big tech company stocks kept going higher and leading the market, that drew more and more investors in and kept pushing the stocks higher.
And while we saw stocks across the board suffer steep declines for most of 2022, tech stocks have not taken part in the most recent rally we've seen in the Dow and the S&P 500. Why are they still down so much?
There were several disappointing quarterly earnings reports recently that really hit some of the high profile big tech companies. The market reacted pretty strongly because, in part, people were expecting more resilient results from these huge companies, as some investors told me. For example, Meta Platforms, which is the parent company of Facebook, reported its second consecutive quarter of declining revenue and warned about rising costs. And the stock dropped 25 percent the following trading session, which is a really big decline, especially for Meta. And, you know, like you mentioned, tech stocks have been struggling all year. And a lot of that is because the Federal Reserve's interest rate increases this year have changed how investors approach the market.
particularly the technology stock sector and other growthier parts of the market.
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