Nasdaq steadies after $1 trillion rout, pointing to a bumpy 2022

Technology stocks opened slightly higher after nearly $1 trillion in value got wiped out of the Nasdaq Composite Index this week as a surge in U.S. bond yields spook investors.

Nasdaq 100 was 0.4% higher on Thursday after the worst two-day rout since March even as Tesla Inc. and Netflix Inc. fell more than 1%. U.S. 10-year Treasury yields traded near 1.75%, the highest in about 10 months. The benchmark S&P 500 Index was up 0.3% in morning trading in New York, showing signs of stabilization.

Expensive software makers, biotechs and newly minted stocks fell the most this week, while Cathie Wood’s ARK Innovation exchange-traded fund, the poster-child of hyper-growth names, tumbled 8%. The fund was up 1% on Thursday.

Higher rates reduce the present value of future earnings, weighing especially on shares of highly valued, fast-growing companies. Zscaler Inc., Datadog Inc., Peloton Interactive Inc. and Crowdstrike Holdings Inc. have lost more than 10% this week. Megacaps haven’t been spared either: the NYSE FANG+ Index has fallen 2.8%, led by Nvidia Corp. and Microsoft Corp. Those stocks were trading slightly higher on Thursday.

The first quarter “will bring at least a temporary reversal of the technology sector valuation boom that lifted companies such as Apple and Microsoft to the world’s largest market capitalizations,” said John Ricciardi, head of global asset allocation at Deuterium Capital Management. Since touching a historic $3 trillion market value on Jan. 3, Apple Inc. has been in decline.

eToro Global Market Strategist Ben Laidler said that while he’s positive on 2022, the year will see lower returns than 2021, with more volatility.

Tighter Policy May Provide Spark for a Value Rally: Taking Stock

Hedge funds, which spent December unloading high-growth, high-valuation stocks, began the new year by jettisoning software and chipmakers at a furious pace. In the four sessions through Tuesday, these sales reached the highest level in dollar terms in more than 10 years, according to data compiled by Goldman Sachs Group Inc.’s prime broker.

A correction, however, might not be a given. Tech stocks took a similar beating in March, but bounced back right after.

“The dip in stocks seems a bit overdone,” UBS Global Wealth Management strategists led by Mark Haefele said in a note. “The normalization of Fed policy shouldn’t dent the outlook for corporate profit growth, which remains on a solid footing due to strong consumer spending, rising wages, and still easy access to capital.”