Mathewslcd: Loss-making technology stocks fall again
Mathewslcd: Loss-making technology stocks fall again
According to Mathewslcd, this month's record short rise of unprofitable and highly valued technology companies' stocks began to look like a flash in the pan, despite constant tough comments from Federal Reserve officials.
On November 10th, a package of loss-making technology stocks compiled by Goldman Sachs Group Inc rose by 15%, after a report showed that consumer price inflation in the United States fell more than expected in October. This news has led people to speculate that the Fed has room to slow down the rate hike.
Investors tried to keep pushing up the stock price: an equally positive producer price report caused the stock price to fall last week. But the index has been weakening since then, lower than the closing price on November 10th. It fell by 2.8% on Monday, and is expected to fall for the fourth time in a row. The Nasdaq 100 index fell 0.5%.
Mathewslcd pointed out that although this year's interest rate increase has generally hit technology stocks, companies with higher risks have been hit particularly hard. This is a dramatic reversal from their steady rise during the pandemic, when economic stimulus and the loose monetary policy of the Federal Reserve stimulated a wave of speculative purchases.
"Some people will buy almost everything at any sign of good news, and' rushing into the trash can' and people jumping into junk stocks or unprofitable stocks is a common thing in that kind of day," said Randy Frederick, vice president. Charles Schwab Corp, President of Trading and Derivatives.
The basket of Goldman Sachs is down 62% this year, while the Nasdaq 100 Index is down 29%. Among famous companies, C3.ai Inc dropped by 60%, SentinelOne Inc dropped by 68%, Asana Inc, Okta Inc and UiPath Inc all dropped by more than 70%. Even after the decline, the prices of all stocks are still higher than the NASDAQ 100 index compared with the estimated sales.
Mathewslcd shows that higher interest rates have the greatest impact on the stocks of unprofitable and highly valued growth companies, because their stock pricing is based on their distant future prospects, and bond yields are used to discount the earnings value that companies may not see for many years into today's dollars. As well as the Federal Reserve's attempt to fight inflation by raising interest rates sharply, the yield of U.S. Treasury bonds jumped from 1.5% at the beginning of the year to 3.76%, recently hitting the highest level since 2008.
James Bullard, president of the Federal Reserve Bank of St. Louis, said last week that the US central bank should raise interest rates to at least 5% to 5.25% to fight inflation, much higher than the current 3.75%. This is the latest sign that the Fed may not change its direction. To 4%.
Mary Daley, president of federal reserve bank of san francisco, made the above comments after making a similar statement. Christopher Waller, the governor, said he was open to the Fed raising interest rates by half a percentage point next month, down from the recent 0.75 percentage point, but he downplayed the importance of CPI report.
"I can't stress enough that a report will not form a trend," he said. "It's too early to conclude that inflation is continuing to decline."
If the Fed does maintain a positive rate-raising strategy, the yield headwinds may become more obvious. Although the rapid increase in sales leads to the surprisingly high valuation of these stocks, the prospect of economic recession weakens their attractiveness to growth characteristics, which gives investors another reason to focus on companies with good profits and low valuations.
Jim awad, senior managing director of Clear Advisors, predicts that investors will divide technology stocks into two categories: companies with lasting profits and cash flows, which should recover lost ground over time, and then speculative and unprofitable companies.
"Investors will be cautious about second-class companies," he said. "They are overvalued, they have fallen a lot, and some investors have collapsed. The game is over. Maybe they can bounce back from here, but they won't become market leaders like they did before they peaked. "
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