U.S. tech stocks suffered their worst daily performance since mid-March, as investors gave up stakes in some of the best-performing stocks since the pandemic hit financial markets last year.
On Wall Street, the technology-driven Nasdaq Composite Index fell 1.9%, its worst trading session since March 18.
Apple shares fell 3.5%, on track for their biggest drop since October of last year. Facebook, Google’s parent Alphabet, and chipmaker Intel all refused.
Other parts of the $ 48 billion U.S. stock market that rose sharply this year were under pressure, according to Goldman Sachs, with shares of recently listed companies as well as stocks sensitive to fluctuations in the price of bitcoin.
Traders and investors said they were increasingly baffled by indications that higher inflation was starting to emerge, underscored by comments from US Treasury Secretary Janet Yellen on Tuesday, who said that rates were rising. Interest may have to increase to prevent US economic expansion.
“Interest rates may have to rise somewhat to make sure our economy doesn’t overheat,” she said at an event hosted by The Atlantic magazine.
This point was then echoed by White House press secretary Jen Psaki, who said the Biden administration took “the risk of inflation incredibly seriously.”
“Even if the prices do not increase [today], we are seeing more and more pockets of inflation bubbling up, ”said Jim Tierney, investment director of US Concentrated Growth at AllianceBernstein. He pointed to a further rise in commodity prices, as well as comments from executives on earnings calls that many companies were already planning or planning to raise prices.
“The stock market might say, ‘Hey, we’re worried about inflation,’ Tierney added.
The European Stoxx 600 index closed down 1.5%, with tech stocks also falling the most. Shares of German software group SAP fell more than 3 percent and Dutch semiconductor equipment maker ASML lost nearly 5 percent of its market value.
The move came after major tech companies stunned Wall Street with a surge in first-quarter sales and profits, which underscored how much they had benefited from keeping consumers in their homes during lockdowns.
Investors “were now coming out of stocks blocked in the short term,” said Didier Rabattu, head of actions at private bank Lombard Odier, while they were considering “strong economic growth and participating in the reopening of trades”.
Brian Bost, co-head of Equity Derivatives in the Americas at Barclays, added that the fact that stocks fell despite the good results was an “indication” of the current positioning in the market “. “Also, whether you think inflation might be transient or not, you should at least consider higher risk premiums,” he said.
The US economy grew 6.4% in the first quarter of this year, according to data released last week. Non-farm payroll data on Friday is expected to show the U.S. economy added nearly 1 million new jobs in April.
“We have reduced our exposure to the US market and in particular to technology, where corporate results have been strong but valuations are now probably too high,” said Juliette Cohen, strategist at CPR Asset Management.
Commodity prices continued to climb on Tuesday. The price of copper hit its highest level in a decade last week, while a commodity price index compiled by Bloomberg on Tuesday hit its highest level since 2011.
Oil continued to advance, with Brent futures settling 2% at $ 68.88 per barrel.
The dollar, measured against a basket of currencies, strengthened 0.4%, while the yield on the 10-year US Treasury bill fell 0.01 percentage point to 1.59%.
Yields on Treasuries rose around 0.9% at the start of the year, but have moderated since March after the US central bank pledged that temporary spikes in inflation would not persuade it not to tighten monetary policy.