Why tech companies suffer historic losses on Wall Street

 

In the first five months of the year the Nasdaq index fell almost 23%. And in June the scenario has not improved in that stock market indicator

After the spectacular gains it had in the pandemic, the stock market records a bad year in 2022. Investors suffer losses, even those who bet on safe securities such as those of technology companies, which had years of prosperity. Until now.

In midtown Manhattan, surrounded by the lights and electronic billboards of Times Square, is the Nasdaq, the stock exchange that specializes in technology companies.

In the first five months of the year, the Nasdaq index - which reflects the ups and downs of the set of shares traded on that stock exchange - fell almost 23%. And in June the scenario has not improved.

"It is one of the worst falls that the Nasdaq has had in its history," Eduardo Carbajal, professor of Economics and Finance at the Technological Institute of Monterrey, in Mexico, told the BBC.

And the so-called "big tech" - such as Meta (Facebook parent), Amazon, Netflix, Apple and Alphabet (Google parent) - have not escaped either, and suffered percentage declines of more than double digits.

What's happening to tech stocks?

The markets are volatile. The mood of investors, what they expect to happen in the future, is what determines share prices on the stock market. And this year, the trend has been to get rid of those assets because they understand that they will not have the expected return.

"My hypothesis is that there was an overvaluation of many technology companies," Carbajal said. "It is not possible that Tesla had a higher market value than any company that historically produced cars," he added.

There are several factors that influence the current spirit of investors. The first is high inflation, a widespread phenomenon in the Western world this year. In the United States, for example, the annual figure stood at 8.6% in June, the highest in the last 40 years.

Inflation brings uncertainty, a dirty word for the markets. To try to curb the wave of inflation, central banks are increasing interest rates, a measure that makes money and thus credits more expensive.

In Washington, the Federal Reserve decided to increase rates and the signs it has given indicate that it will continue to do so. This affects to a greater extent the companies that in recent years took advantage of the very low interest rates to inject bills into them.