As the Federal Reserve tightens banking conditions, investors have rushed out of speculative areas of the market. Many of last year’s high-flying IT businesses are listed in the United States, where share prices have plummeted dramatically, reports CNBC.
Global equities fell to their lowest levels in over a year, owing to huge losses in Netflix shares, which exacerbated a sell-off in internet stocks that spread to other sectors.
The Nasdaq Composite index, which is heavily weighted in technology, plunged 7.6% last week, the most since the coronavirus outbreak shook US markets in March 2020.
Share Market Overview: Past Week
Over the past week, the blue-chip S& P 500 index, a widely followed indicator of the $50 trillion US stock market, has lost 5.7 percent. More than two-thirds of the index’s businesses are in a technical correction, meaning they are down at least 10% from their all-time high, with 149 equities down 20% or more.
Netflix, which fell 22% on Friday after the streaming company warned that membership growth will slow significantly, was one of the worst-affected US equities.
The drop knocked $49 billion off the company’s value or approximately the same as the market capitalization of the food company Kraft Heinz.
Confidence Of Investors
Investor confidence has been hammered by a disappointing start to earnings season, according to the investment director at Abrdn, Tim Skiendzielewski, a $700 billion asset management.
Many investors bought derivatives to protect themselves from further market falls when equities markets fell. In the United States, activity in equity put options, which payout if the index or stock falls in value, surpassed 30 million contracts for the first time in history.
On Friday, investors shifted out of fast-growing and highly-valued businesses like Netflix, marking the latest stage of a selloff that has resonated across global financial markets as investors cope with a US central bank that is significantly changing monetary policy.
Traders anticipate the Fed raising rates of interest four times this year and ending other stimulus measures that have boosted stock markets since the pandemic began. The backbone of the market and the global financial system acts as a measure for the pricing of all other assets, the $22 trillion Treasury market, which has been hit hard by the Fed’s move.
Treasury yields have risen sharply this year, triggering a strong stock market shift away from tech equities and toward companies whose fortunes are tied to the economy’s recovery from the effects of the coronavirus.
The attractiveness of so-called growth stocks, whose values are based on future earnings that will not be received for many years, has been dampened by the rising yields.
The ten-year real yield continued to increase on Friday, momentarily reaching minus 0.54 percent, its highest level since February 2020, even as Treasury prices firmed, extending a rally that began the previous session.