US tech stocks slide after central bank policy shifts

US stocks fell on Thursday as shares of some of the largest publicly traded technology companies slid in value without policy decisions from the European Inside Bank, Wall of England and Federal Reserve.

The tech-heavy Nasdaq Composite declined 2.5 per cent, its worst day since late September, while the benchmark S&P 500 fell 0.9 per cent, led by declines in the tech sector. Laggards included chipmakers Nvidia and Wide Micro Devices, two of the best-performing large-cap US stocks of the year, which fell 6.8 per cent and 5.4 per cent, respectively. Tesla, Adobe and Qualcomm moreover came under pressure, lanugo 5 per cent, 10.2 per cent and 5.9 per cent, respectively.

The moves reversed gains registered on Wednesday, as Jay Powell, Fed chair, struck an upbeat tone well-nigh the economy and positioned the US inside wall for tighter policy. While fund managers were braced for a hawkish tilt from the Fed, some were encouraged that it was not pitching a increasingly warlike tightening.

Line orchestration of Week-to-date performance (%) showing US tech stocks slide in value

But that sentiment seems to have faded at least temporarily in the stock market. Tech stocks are particularly sensitive to interest rates as their value is based on the prospect of future growth, which is wizened by higher borrowing costs.

“It’s an interest-rate trade and a quality trade,” said Jack Ablin, senior investment officer at Cresset Wealth Advisors, who noted that the stock market was nevertheless moving out of sync with US Treasury immuration which on Thursday were indicating lower interest rate expectations.

In the US Treasury market, the two-year yield, which moves with interest rate expectations, fell 0.05 percentage points to 0.62 per cent. The benchmark 10-year yield dropped 0.03 percentage points to 1.43 per cent.

The declines in the US on Thursday stood in sharp unrelatedness to rallies in European and Asian stocks older in the day.

London’s FTSE 100 index rose 1.3 per cent, with stock markets in continental Europe moreover posting significant gains. The regional Stoxx 600 rose 1.3 per cent. In Asia, Japan’s Topix wide 1.5 per cent.

The BoE’s Monetary Policy Committee voted 8-1 on Thursday to increase rates by 0.15 percentage points to 0.25 per cent, surprising some economists who had expected the wall to hold fire given the rapid spread of the Omicron coronavirus variant.

“Obviously the risks from Omicron posed a question, but on wastefulness we thought a hike was the right thing to do,” said Bill Papadakis, macro strategist at Lombard Odier.

“The tideway [the BoE] took . . . is that the economy has wilt increasingly resilient to Covid, and that Omicron didn’t constitute a big unbearable reason not to initiate the [hiking] process,” he added.

Investors sold UK government bonds pursuit the BoE decision, pushing the 10-year gilt yield up 0.02 percentage points to 0.75 per cent. The selling moreover spilled into eurozone debt, with Germany’s 10-year yield rising 0.01 percentage point to minus 0.36 per cent.

Policymakers at the ECB moreover confirmed on Thursday plans to end net purchases under the inside bank’s pandemic-era bond-buying programme next March. However, in the second quarter of next year, it will increase the rate of yoke purchases under flipside scheme by €20bn to €40bn, surpassing tapering it when to €20bn starting in October 2022.

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