Is the golden era for Big Tech stocks coming to an end?
Market frenzy on Wall Street last week after Meta, Facebook’s parent company, suffered the greatest one-day loss in history — some $230 billion was wiped off the company’s value — was countered 24 hours later by a 15% increase in Amazon’s value after the company reported a doubling in quarterly profits.
But, with America’s Federal Reserve System — The Fed — signalling that there will be an increase in interest rates in the coming months, the investment community appears to be moving away from the titans of Silicon Valley.
For the past two years, fewer companies have benefitted from The Fed’s policy of insulating the US economy against the effects of the pandemic by flooding the market with cash, than Big Tech who saw their prices soar during this time.
A shift to higher interest rates will see investors rethink their strategies as they examine individual companies more closely. This was evident by Amazon’s record single-day gain just a day after Facebook’s greatest single-day loss.
The pandemic has seen a remarkable bull market in stocks. From a period low in March 2020, the Dow Jones industrial average nearly doubled in value.
What will be worrying Big Tech bosses are the warnings from both The Fed and the International Monetary Fund that stock prices might be losing touch with fundamental values. Indeed The Fed warned in November that asset prices might be vulnerable to significant declines should the appetite for risk dip among investors.
With the prospects for higher interest rates looming, it is expected that the high-tech firms which have lit up Wall Street over the last two years will soon become less attractive and alternatives to stocks will appeal more.
In America, since January, investor concerns about rate changes have hit Big Tech the most and that month was the worst since 2008 for the Nasdaq composite index, which is heavily weighted towards technology companies. Since then Amazon, Microsoft, Google, Facebook, and Apple have all seen significant share price losses.
It appears that while investors have not yet turned their backs on Big Tech, they are becoming considerably more selective and looking to direct their money into banks, producers of consumer staples, and energy producers.
Has Big Tech had its’ day? Almost certainly not. But it may no longer be the Golden Goose it once was.