A few years ago, investing in tech was all the rage. However, as 2022 kicked in, stock market investors discovered they were in for a rude awakening. The year has been a horror show, with the SP 500 being worse than it ever was since the crash of 1939. It fell over 16%, with the tech sector, once the star of the show, crashing and burning worse than ever.
Even tech giants that outperformed a lot of the others over the past ten years saw their shares fall to the ground this year. These include names like Amazon, Netflix, Alphabet, and Apple. Why is this happening? Let’s take a look.
1. Substantially Fewer Earnings
Tech companies are used to earning billions of dollars. However, over the last three trading sessions, big tech companies have lost over $1 trillion in value. Some of the biggest tech companies in the world are still dealing with the staggering effects of not being able to meet their expected earnings. Tech companies grew exponentially wealthy during the pandemic.
One such example is Peloton which gained massive popularity when the pandemic first hit. However, this year Peloton lost more than $757 million just from January to March 2022. Its shares plummeted drastically, by 13%, resulting in its market value falling to $4 billion instead of the $47 billion value it had in 2021.
Another reason why tech companies are earning less is that retail investors who trade in the stock market as individuals are not interested in investing anymore. 25% of the stocks were traded by non-professional investors during the pandemic, supported by online trading platforms as most people were working from home.
Now that things are different, a large number of individual investors have abandoned the stock market because the earnings didn’t meet their expectations and the market has returned to its original state.
2. High Inflation
Inflation is higher now than it has ever been in the past forty years. The Federal Reserve is now doing damage control by raising interest rates. They are also attempting to reduce its $9 trillion balance sheet to try and get the prices under its control. When things like this happen, Wall Street starts getting nervous, investors start getting anxious because it can make borrowing far more costly for both households and corporations. This process can prevent economic growth and cause a recession.
3. Concern About The Economy
We can’t predict how the economy will turn out after a few months. Some analysts are afraid that as interest rates rise, the economy can fall into a recession, with people spending less and less money on non-essentials, like niche tech products. The Bureau of Economic Analysis reported that the nation’s economy declined at an annual rate of 1.4%, just in the first three months of 2022, despite showing steady growth the previous year.
A recession can be on the cards, and when people learn about the possibility, it hurts the economy as it settles into industrial consciousness. Economists consider the recent tech crash as an early warning sign about the dire straits of the economy in the future if we undergo a recession. If you or someone you know wants to learn more about falling Tech stocks, the Traders Circle can be of great help.
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