Investors are exiting risk assets following Russia’s invasion of Ukraine, according to futures tracking the Nasdaq 100 Index.
As of 7:09 a.m., March futures for the technology-heavy index were down 2.6% following earlier losses of 3.6% as Russian forces attacked targets across Ukraine after President Vladimir Putin ordered a demilitarization operation, sending markets tumbling around the globe. The S&P 500 futures fell as much as 2.9%, while the European benchmark stock index fell as much as 3.6%.
Apple fell 2.9%, Microsoft fell 2.9%, Amazon.com shed 3.2%, and Alphabet dropped 2.8%. During the day, Meta Platforms sank 3.5%; the Facebook parent has underperformed for months.
Invasion is the latest risk to hit markets, following a rise in rates and persistent inflation.
It is extremely hard to call a bottom at this point, and the geopolitical risk makes it even harder,” said Ivana Delevska, chief investment officer at SPEAR Invest.
After setting a record closing on Nov. 19, the Nasdaq 100 has lost about 18% amid skyrocketing inflation, disappointing earnings, and conflict prospects. So far this year, companies on this index have lost about $3.1 trillion in market capitalization as investors grapple with rising interest rates, which chip away at future earnings, and slowing growth.
As the Nasdaq Composite Index approaches bear territory — a decline of 20% or more from a recent high for a stock index — some strategists believe the selloff could have gone too far.
The weakness in U.S. markets seems to be sentiment-driven rather than economic-driven, according to Altaf Kassam, EMEA head of investment strategy and research at State Street Global Advisors. “The moves inspire us to add a little risk in a measured manner. However, we are tempering this addition to risk with some tail risk hedges, particularly long duration Treasury bonds and VIX futures.”
In anticipation of the Federal Reserve withdrawing the massive monetary stimulus that has supported the U.S. financial system since the pandemic, yields have soared. Investors are dumping tech and growth stocks, whose valuations ballooned during the pandemic, as borrowing costs rise. Policymakers are fighting the largest consumer price spikes in decades.
Eric Diton, president and managing director of The Wealth Alliance, said growth stocks had become overvalued. Like the tech bubble, there was a sense of intense speculation.”
In the second week of January, more than a third of the Nasdaq 100, which represents the exchange’s largest non-financial companies, were down at least 50% from their 52-week highs. On Wednesday, 1% of Nasdaq Composite stocks reached new 52-week highs.
Since the pandemic shut down the U.S. economy in 2020, Big Tech has experienced the wildest volatility swings in recent weeks. One day this month, Meta Platforms Inc., the parent company of Facebook, posted the worst one-day drop in stock market value in history, while Amazon.com posted the largest single-day gain in market capitalization in U.S. history.
Since smaller, fast-growing tech companies rely more on capital markets for financing than on incredible riches that have made some founders skyrocket to the moon, they are especially vulnerable to tighter monetary policy.
As investors switch from growth stocks to energy, financials, and other cyclical shares, U.S. tech companies may suffer further losses. It’s likely that the shifts represent a rebalancing away from the atypical conditions that have persisted for more than a decade and helped build a cadre of trillion-dollar companies.