Tech stocks brace for more bleeding as Fed ratchets up rates

Technology stock futures pointed to more selling ahead for the group on Thursday after the Federal Reserve raised interested rates by 75 basis points for a third consecutive time and signaled more rate increases are in store in its fight to curb inflation.

Amazon.com and and Meta Platforms dropped more than 2 per cent on Wednesday in a volatile session that also saw the Nasdaq 100 Stock Index falling to its lowest level since July 1 after a brief rally.

The index closed 1.8 per cent lower, while the S&P 500 fell 1.7 per cent. Amazon traded 0.7 per cent lower postmarket, while Apple slid 0.4 per cent.

The Fed’s higher rate target is a clear escalation in its effort to stamp out inflation and creates a high likelihood of a recession if carried through, according to Michael O’Rourke, chief market strategist at Jonestrading.

“The market should be pretty upset about this,” said O’Rourke. “They’re trying to slam the breaks on this economy and I think all bets are off at this point where people who have been trying to ride it out really have to re-evaluate and start de-risking positions.”

Technology and other growth stocks have been battered this year amid slowing economic growth and soaring interest rates, which have weighed more heavily on faster-expanding sectors whose valuations are based on profits anticipated further into the future.

The Nasdaq 100 rebounded in July and August but those gains have shrunk amid stubbornly high inflation that dashed hopes that the Fed could soon begin dialing back its monetary tightening campaign. The tech-heavy benchmark is down 29 per cent so far this year and now within striking distance of its June low.

“Big tech is a group that will continue to bleed for the foreseeable future,” said James Abate, chief investment officer at Centre Asset Management. “At best it will match the market’s performance. At worst, it underperforms.”