Megacap shares sell at fastest rate since the dot-com crash in 2000 | Technology news

The technology-focused Nasdaq 100 index fell 0.3 percent Thursday, extending its decline this year to 27 percent.

by Bloomberg

Technology stocks and big corporations are selling at the fastest rate since the dot-com crash in 2000 compared to cheaper companies such as banks and energy companies that pay higher dividends.

Investors are calming in stocks whose earnings prospects look far out of reach — the future has become more uncertain after prices rose more than expected in April, keeping inflation near 40-year highs. Add in a more aggressive policy response by the Federal Reserve and a potential recession, and all the ingredients for a deeper technical depression are in the pipeline.

“This CPI is perhaps the most eagerly anticipated in recent history, particularly for high-growth investors who make up the bulk of their portfolios,” said Louis Grant, senior portfolio manager at Federated Hermes in London. “It would not have been welcome news.”

Global growth stocks have underperformed the biggest since 2000

Thursday’s data showed producer prices rose faster than expected, adding more pressure on US policy makers to ramp up interest rate hikes. This is an exciting speculation that the Fed will resort to a three-quarters point move to follow up last week’s 50 basis point increase, the largest in two decades.

For growth stocks like Apple Inc. And Alphabet Inc., owner of Google and Amazon.com, means a bigger discount to its earnings power. The technology-focused Nasdaq 100 fell 0.3% Thursday, extending its decline this year to 27%.

“The main weaknesses of growth stocks stem from the destruction of excess liquidity globally, and the associated high discount rates,” said Peter Chatwell, head of global macro trade strategies at Mizuho International Plc. “Now that monetary tightening is fully in effect, this should only be the beginning of the overall trend.”

Nearly half of Nasdaq voters are down at least 50% from high levels, according to JPMorgan Chase & Co. Baskets tracking unprofitable tech companies and value-rich software companies have lost all of their gains in the pandemic era.

Moreover, growth stocks are likely to remain under pressure amid the prospect of a more aggressive Federal Reserve, according to Citigroup Inc. strategists. They reiterated their preference for cheaper stocks.

Growth stocks took a hit in 2022 but there's more to go for

Growth stocks remain expensive, especially when compared to periodic value stocks. The MSCI Global Growth Index is currently trading at 22x forward earnings versus 12x for their valued peers. The gap between the two popular investment styles is twice the 25-year average.

Expectations of future earnings put growth stocks directly in the path of inflation, which erodes future revenues. Just look at Tesla Inc. , which trades at 55 times 12-month forward earnings – a far cry from the S&P, which trades at 16.6 times.

Economic reality seems to cloud this view of earnings growth.

“Big capital growth has slowed due to slower earnings growth and the possibility that economic conditions may not be as favourable for them as compared to the rest of the market as they were during the height of the pandemic,” said Ed Clesold, chief US strategist at Ned Davis Research. “Continuing the cycle of narrowing should mean more pain to grow.”

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