A version of this story first appeared in the CNN Business Before the Bell newsletter. Not a subscriber? You can subscribe here. You can listen to the audio version of the newsletter by clicking on the same link.
After a roaring rally for most of this year, the rally in technology stocks faltered in August as investors grew increasingly concerned about how long the Fed would keep interest rates high.
The pain in technology can continue.
Strong economic data in recent months has investors betting that the Fed will keep interest rates high for a longer period. Minutes of the Fed’s July meeting released earlier this month revealed that officials are worried about whether inflation will subside further without additional easing in the economy and labor market.
The odds of another rate hike later this year or early next year have increased over the past month, although the majority market view remains (narrowly) that the Fed is done. Hopes for a rate cut have been pushed back to May 2024, at the earliest.
US 10-year yield The Treasury note closed at around 4.32% on August 21, its highest level since early November 2007. On the same day, the yield on the 30-year Treasury note posted its highest close since late April 2011 – around 4.46%.
that crop A big rally puts pressure on stocks, as investors tend to prefer bonds when they have attractive yields. Higher yields also mean that companies will need to pay more interest on their debt in the future, which affects future cash flows.
Higher sustainable returns can be particularly problematic for technology stocks, which often trade at a premium because of the promise of rapid growth.
Any sell-off in tech could reverberate through the broader market, as these stocks are largely responsible for driving this year’s rally.
Indeed, the slowdown in the rise of technology has weighed on stocks.
The Nasdaq Composite is heading for its worst monthly performance of the year and breaking its five-month winning streak. The benchmark S&P 500 is also on track to post a series of monthly gains of the same duration.
However, some tech bulls do not shudder at the prospect of a rate hike.
Ivana Delevska, founder and chief investment officer at Spear Invest, says she expects strong earnings from tech companies to offset potential pressure from higher returns.
Her company’s biggest center is Nvidia, whose shares are up more than 200% this year, largely On the enthusiasm of artificial intelligence. Spear It also invests in other chipmakers such as Advanced Micro Devices and Marvell Technology among other technology names.
While stocks, including technology companies, have risen slightly again in recent days thanks to cooler-than-expected economic data, two pieces of important economic data later this week will test the market: the personal consumption expenditures price index for July, due on Thursday, the personal consumption expenditures price index for July, expected on Thursday, and the personal consumption expenditures price index for July, expected on Thursday. The August jobs report is on Friday.
The US economy grew more slowly in the second quarter than previously expected. This is a good signal for the Federal Reserve, which is trying to moderate demand to reduce price increases, says my colleague Brian Mina.
Gross domestic product, the broadest measure of economic output, rose at an annual rate of 2.1% in the second quarter, according to the Commerce Department’s second estimate, released Wednesday morning. This is a slightly slower pace than the 2.4% initially estimated by management.
Second estimate It takes into account the increase in consumer spending, government expenditures and exports, compared to the initial estimate. Meanwhile, business investment and inventories were revised downward. Commercial investment – referred to as non-residential fixed investment – was revised to a growth rate of 6.1%, compared to 7.7% in the first estimate.
Read more here.
The latest airline employees to vote to strike are American Airlines flight attendants, CNN’s Gregory Wallace reports.
The union representing them, the Association of Professional Flight Attendants, reported a vote of 99.47% in favor of authorizing the strike, with 93% of union members casting ballots.
“We resist and fight corporate greed, and corporate greed is very much alive here at American Airlines,” union president Julie Hedrick said Wednesday. the Union It says it represents more than 26,000 workers.
“We are proud of the progress we have made in negotiations with APFA, and look forward to reaching an agreement that provides our hosts with real and meaningful value,” an American Airlines spokesperson said in a statement.
But the vote does not mean that a strike is expected and imminent. Airline workers and employers face a long series of steps before an actual strike can take place.
Read more here.