Last week, tech leaders pulled the Nasdaq index lower. Microsoft (MSFT) lost 7%, Google (GOOG) lost 6.75%, and Apple (AAPL) fell by 3.98%. Tesla’s (TSLA) CEO, Elon Musk, distracted with his bid to buy Twitter (TWTR), worried investors. Tesla led the electric vehicle stocks lower. TSLA stock lost 6.8% last week.
Cracks in Nasdaq are widening. Tech firms will report deteriorating fundamentals, due mostly to unfavorable year-on-year comparisons. The Covid pandemic forced corporations to accelerate technology hardware and cloud computing investments. They spent many years’ worth of solutions in a few quarters. Markets extrapolated the growth into the infinite future.
This is a mistake.
Workers are returning to the physical workplace, at least partly. The hybrid workplace will slow corporate technology spending. Furthermore, the economy will eventually slow. Weaker demand will pressure companies to cut spending.
The U.S. government reported a consumer price index up by 8.5% Y/Y. The Federal Reserve must raise rates by at least 50 basis points to slow demand and inflation. A recession will eventually follow. Last week’s tech stock correction could worsen. Markets must re-value stocks at lower price-to-earnings multiples. This will align with the slower growth ahead.