Tech stocks have been battling a new year hangover, pushing the Nasdaq into correction territory. Momentum is building against companies with exciting promises to reshape the world, as investors look for alternative alternatives such as oil and banking.
The tech sector is facing a crunch fortnight as its biggest names report results, including Microsoft on Tuesday, Tesla on Wednesday and Apple on Thursday. They have to prove they can thrive in a post-lockdown world where the cost-of-living squeeze is leaving people with less money for tech products and services.
Matt Weller, global head of research at the Forex.com and City Index, says that the outlook for the Nasdaq 100 will be clearer in two weeks. Earnings reports or weak guidance could see the index have one of its worst starts in over a decade.
Omicron has now jolted a return to normal life, but smaller growth stocks such as the Pandemic winners Peloton and Zoom have been under pressure for months. A near-record number of tech stocks have recently plunged 50% from their all-time highs.
The technology giants shares have had an incredible run, helping the S&P 500's IT index deliver blockbuster returns of 33% in 2021. The sector lost 10% in January.
Anxiety over the US interest rate hurts the unprofitable tech firms promising big earnings in the future. The Federal Reserve, which meets this week, is likely to raise rates several times this year to tame US inflation, now at its highest since 1982.
The year 1982 was when Time magazine chose the personal computer as its person or machine of the year. The idea of a company worth 3 trillion dollars was staggering. In early January, Apple soared to the $3 tn mark but has fallen 7% since, and must overcome the problems in global supply chains to justify such a hefty valuation.
Analysts predict that Apple's revenue rose 6% year-on-year in the last quarter, beating the record earnings of $111.4 billion last year. Profits could be up 13%. The interest in both is high, but Tesla s shares dropped this month after references to the Cybertruck entering production this year vanished from its website.
Even if the tech giants hit their numbers, they still face scrutiny. Meta, owner of Facebook, reports on February 2, is targeted by regulators who want to break it up, and the chair of the Federal Trade Commission, Lina Khan, is vowing not to back down.
Khan is a competition law expert who published a seminal paper, Amazon's Antitrust Paradox while still a student. It argued that the traditional framework was not fit to assess the digital giants, so a more expansive framework was needed. Amazon and Facebook claim that Khan should be removed from antitrust probes because she is not impartial. Her expertise could be just what is needed to keep Big Tech in check.