One of the primary drivers of the recent tech stock downturn is the surge in bond yields.
October has not been kind to tech stocks. Following a turbulent September that saw the tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) drop by 5.8%, the month began with another round of losses as a surge in interest rates prompted investors to rethink their positions in risky assets.
Tech Stocks in Decline
A recent report from CNBC revealed that the Nasdaq sank 1.9% on Tuesday, finishing at 13,059.47, its lowest level since May. Despite a year-to-date gain of 25%, the index’s recent performance has sparked concerns among investors.
Notably, Amazon Inc (NASDAQ: AMZN) saw the largest decrease among the mega-cap tech giants, with its shares plunging 3.7% to $124.72.This marks Amazon’s worst month since February.
Meanwhile, the e-commerce giant is grappling with several challenges, including concerns about a potentially disappointing holiday shopping season and a massive antitrust lawsuit filed by the Federal Trade Commission (FTC).
Microsoft Corp (NASDAQ: MSFT) and Meta Platforms Inc (NASDAQ: META), two other tech giants, also experienced declines in their stock prices. Microsoft saw its shares slide by 2.6%, while Meta, the parent company of Facebook, fell by 1.9%. These drops are part of the broader trend of tech stocks facing headwinds due to rising interest rates and concerns about economic stability.
Another notable casualty of this tech stock downturn is Airbnb Inc (NASDAQ: ABNB). The vacation rental platform saw its shares plummet by 6.5%, marking its second-largest drop of the year.
This decline came after analysts at KeyBanc downgraded the stock from a buy to a hold. The downgrade was accompanied by a reduction in adjusted earnings expectations through 2025, citing the shift in consumer behavior towards purchasing more physical goods.
The analysts at KeyBanc stated:
“Our call is that leisure travel has experienced a material recovery from 2021-2023E, resulting in outsized margin expansion. As these tailwinds fade, growth in room nights and experiences as well as the company’s average daily rate could be hurt.”
The Impact of Rising Interest Rates
One of the primary drivers of the recent tech stock downturn is the surge in bond yields. The 10-year Treasury yield, reaching 4.8%, recently hit its highest level in 16 years. This increase in bond yields presents an attractive opportunity for money managers seeking returns in fixed-income investments. However, it also raises borrowing costs for consumers and businesses, potentially reducing discretionary spending and corporate investments.
The Federal Reserve’s commitment to keeping interest rates at a higher level for a more extended period has contributed to the surge in bond yields. As the 30-year Treasury yield also climbed to its highest level since 2007, investors are growing increasingly cautious about the potential impact of rising interest rates on the broader economy and financial markets.