Tech shares hit hard as global stock markets face 'a wall of worry' on stagflation

US stocks declined as a sell-off in technology stocks resumed amid the threat of persistently high inflation. The S&P 500 fell more than 1% while the Nasdaq 100 fell more than 2%.

The losses were led by high-growth technology companies -- including Amazon and Facebook -- while vaccine makers were also lower on Merck's announcement about an effective Covid-19 drug. Energy stocks, meanwhile, were higher along with oil prices.

“There’s a wall of worry that markets are trying to climb at the moment,” said Deutsche Bank strategist Jim Reid in a note. “We have an energy crisis, supply chain issues, higher inflation, signs of weaker growth, and lots of talk about stagflation,” he said. 

Global markets have taken a risk-off turn amid a growing list of worries, just as investors have been bracing for the US Federal Reserve to begin tapering stimulus as early as next month. Higher inflation makes the premium investors pay for high-growth stocks less attractive. 

“Technology stocks are most likely getting hit the hardest because higher interest rates means higher discount rates for future earnings,” said Brian Price, head of investment management for Commonwealth Financial Network. 

“I would expect this dynamic to continue as long as inflation expectations remain at the higher end.” Fears of a spreading energy crunch were also seen adding to concerns about inflation with European power and gas prices surging before the onset of winter. 

The power contract for November in Germany hit a record while natural-gas futures extended a rally. 

“The post-pandemic recovery appears to be stumbling,” said Fiona Cincotta, senior financial markets analyst at City Index. “Supply shortages and a worsening energy crunch mean prices are rising and elevated inflation may not be as transitory as the Fed initially thought,” she said. 

Bloomberg