US tech stocks continue to fall as investors digest Fed minutes
A market decline led by tech stocks continued on Wall Street and Europe on Thursday, as investors reduced market risk in response to the US central bank’s announcement of an early end to its monetary stimulus in the era of the pandemic.
Wall Street’s Nasdaq Composite stock index, which fell 3.3% on Wednesday in its worst session since February 2021, fell 1% by mid-morning.
The blue-chip S&P 500 index was down 0.5%, as the benchmark’s information technology sub-index fell 1%.
In Europe, the regional stock indicator Stoxx 600 fell 1.6%, as government bond prices also fell around the world.
The moves came after minutes from the last Fed meeting revealed that officials at the central bank, which has boosted financial markets since March 2020 with a massive bond buying program and interest rates ‘record interest, there was broad agreement that it was time to accelerate the withdrawal of that support.
“The markets are waking up to the end of the easy money,” said Olivier Marciot, cross-asset investment manager at Unigestion.
“We’ve had a lot of quantitative easing and monetary support, which creates an environment in which all assets tend to thrive, and when you take that out it’s the other way around,” he added.
US energy and banking stocks rose on Thursday, however, as some investors took the Fed’s hawkish turn as a vote of confidence in the US economy.
“The companies most sensitive to the economic cycle are the ones the market will reward,” said Fahad Kamal, chief investment officer at Kleinwort Hambros.
The Fed minutes also revealed that the world’s most influential central bank may need to raise interest rates “sooner or at a faster rate” than officials initially expected to bring the crisis under control. soaring inflation.
The outlook for inflation and higher interest rates increases the opportunity cost of owning stocks, which investors assess based on their expected future earnings and dividend streams, with an effect that is most amplified for start-ups or speculative companies in sectors such as technology.
The Fed minutes also said its officials would start debating how to shrink the central bank’s balance sheet, which has more than doubled to less than $ 9 billion since early 2020, as it grew by aggressively its holdings of treasury bills and mortgage-backed securities.
The yield on the benchmark 10-year US Treasury index, which rises as the prices of the government debt instrument fall, added 0.04 percentage point to 1.74%. This key return on debt which influences borrowing costs and asset valuations around the world fell from around 1.63% at the start of this week.
European government bonds were washed away by the post-Fed liquidation. The German 10-year bond yield fell to minus 0.05%, its highest level since May 2019. Riskier eurozone debt was also hit, with Italy’s 10-year yield exceeding 1.3% for the first time since July 2020.
In Asia, Japan’s Nikkei 225 closed down about 2.9% and mainland China’s CSI 300 fell 1%. Hong Kong’s Hang Seng Index rose 0.7%, however, as steep declines in Chinese tech stocks reversed.
Tommy Stubbington Additional Reports
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