Tech bulls face worst December in 20 years as US Fed anxiety grows

Technology stocks are headed for their worst December since the bursting of the dotcom bubble two decades ago as optimism about potential relief from Federal Reserve interest-rate hikes fades on signs of labour-market strength.

The Nasdaq 100 Index sank 2.5 per cent on Thursday after a report showed US jobless claims remained near historically-low levels, underscoring that the Fed has plenty of reasons to keep tightening policy.

Separate data showed a key inflation gauge was up slightly from the prior reading. 

Add to that weak results from chipmaker Micron Technologies Inc., and the session turned into a brutal one for equity bulls, who are again fretting over the risk of a potential recession.

The tech benchmark, laden with companies like Apple and Microsoft, has dropped 8.93 per cent this month, more than erasing a November rally fuelled by hopes that cooling inflation would set the stage for even slower Fed hikes and potentially a pause next year. It’s down about one-third this year.

The economic figures “were hotter than the market was hoping for, so now we have to contend with the notion the Fed will stay aggressive raising rates,” said Joe Gilbert, a portfolio manager for Integrity Asset Management.

 

“This, along with earnings reports from cyclical companies suggest the forward outlook is weakening substantially and a policy error by the Fed is becoming more likely everyday. This points to a risk-off market.”

The angst is rippling beyond the tech sector. The S&P 500 dropped 1.5 per cent on Thursday and is down about 6 per cent this month. Tech stocks, however, have suffered the most this year amid soaring inflation as their valuations are more sensitive to higher interest rates. The Fed hiked rates last week for the seventh straight meeting.

Among the worst performers on the Nasdaq 100 this month are Tesla Inc., whose shares have dropped more than 30 per cent amid concerns about flagging demand for its electric vehicles and the preoccupation of its chief executive, Elon Musk, with Twitter Inc. Chipmakers Marvell Technology Inc. and Advanced Micro Devices Inc. have fallen roughly 20 per cent.

This month’s selloff would have to get worse to exceed losses suffered in December 2002 when the benchmark dropped 12 per cent.
 

There may be some good news for bulls looking back at how things played out 20 years ago: The Nasdaq 100 had already bottomed in October 2002 after plunging 83 per cent from a March 2000 peak.

But investors don’t appear to be signalling confidence that pattern will emerge again, even though the benchmark is still trading above its closing low for the year set on November 3.