Here are 3 reasons why stocks are falling
Shares fell on Friday, ending this miserable month for markets, especially for Big Tech.
The Dow Jones Industrial Average lost nearly 1,000 points, while the S&P 500 lost more than 3%, with both indexes recording significant losses in April.
But it was much worse for the high-tech Nasdaq, which fell more than 4% on Friday and ended more than 10% in April, the worst month since 2008.
The deep fall reflects a time of deep uncertainty at a time when the economic landscape is changing rapidly.
Here are three main things that are sinking Wall Street.
Big Tech goes from winner to loser
The pandemic was good for Big Tech’s revenue.
Supported by low interest rates and a sudden transition to quarantine and remote work, companies from Netflix to Zoom have had a few mundane months in terms of profits.
And what’s good for Big Tech is usually good for the markets, given that information technology companies make up 28 percent of the S&P 500.
But things have changed – and quickly.
The world is learning to live with COVID. Workers return to their offices. Demand for travel is growing. And the restaurants are filling up again.
This means that Big Tech is now competing with other people’s time requirements.
Netflix shocked Wall Street last week after the announcement lost subscribers for the first three months of the year, for the first time in more than ten years. This announcement led to a fall in shares of more than 40%.
Other major technology companies have also reported disappointing profits or prospects, with some exceptions, such as Meta, the parent company of Facebook.
Amazon on Thursday posted its first quarterly loss since 2015, in part because people returned to shopping at physical stores, in stark contrast to the pandemic when online store profits rose.
Apple, meanwhile, has released very strong results, but its share price has fallen after it warned that blocking COVID-19 in China could affect supply chains and hence sales.
The Fed is battling inflation – and it could get serious
However, it’s not just big revenue from technology.
The market is already under pressure as the U.S. has the highest inflation rates in 40 years.
These price spikes have proven to be a constant, devastating problem for the U.S. and the global economy.
But investors are worried not only about inflation itself, which is at its 40-year high, they are also unsure whether the Federal Reserve will successfully fight it.
At the last meeting of the Fed, the central bank decided to raise interest rates by a quarter of a percentage point, but Fed Chairman Powell Jerome Powell and other politicians have since signaled that they are preparing a much more aggressive response.
The Fed is expected to raise interest rates by half a percentage point at its next meeting next week, and markets are preparing for bigger rate hikes this year.
“I think the market wanted the Fed to fight this fight,” says Lori Calvasina, head of U.S. capital strategy at RBC Capital Markets. “But I don’t think the market is settling for the idea of these big, chunky, fast-growing species.”
The Fed has a difficult job. The goal is to create a so-called soft landing. He is trying to slow the economy down enough to cool inflation.
But raising interest rates is never an exact science, and investors fear the Fed will be too aggressive and inadvertently push the economy into recession.
Of course, the recession is still not seen as a likely outcome, but is widely seen as a potential threat to the economy.
Then China and the war in Ukraine
If the prospect of a recession was insufficient, Wall Street is also dealing with a difficult geopolitical situation.
China is imposing strict rules to combat the COVID-19 outbreak. Shanghai has been under blockade for five weeks now, and the government has closed ports and factories in some of the country’s largest cities.
The consequences of this dispersal could have dire consequences around the world.
During the pandemic, supply chain problems proved to be a big problem, contributing to rising prices. Production slowed down, deliveries were delayed. There are now fears that supply chain problems may remain longer.
Meanwhile, Russia’s invasion of Ukraine continues to affect companies, putting pressure on commodity prices.
Since the end of February, Brent crude oil, an international benchmark oil, has been trading above $ 100 a barrel. He used to trade in the range of $ 70 to $ 80.
But it is not only energy prices that have risen. Due to the invasion, as well as sanctions and trade restrictions imposed by the US and its allies, grain and metal prices have also risen.
Apple CEO Tim Cook warned of global challenges, presenting revenue results this week.
“I want to acknowledge the problems we see from supply chain disruptions caused by both COVID and silicon shortages to the devastation of the war in Ukraine,” he said.