What happened
Shares of Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and Meta Platforms (NASDAQ:FB) were all sliding today as investors continue to dump technology stocks in anticipation that the Federal Reserve will raise interest rates throughout 2022.
Today’s drop comes as tech stocks have been tumbling since the beginning of this year as investors have processed information about rising bond yields as well.
Amazon was down by 2.2%, Apple had dropped 2.7%, and Meta Platforms tumbled 2.8% as of 11:37 a.m. ET.
So what
Technology stocks have been hit hard over the past couple of weeks as the Federal Reserve has indicated that it will begin raising interest rates this year, starting as soon as March.
Image source: Getty Images.
Rising rates can put pressure on consumer spending and also cause companies to borrow less money, which can hamper a company’s growth. With interest rates expected to rise this year, some investors are worried that the rapid growth of tech stocks over the past couple of years may be coming to an end.
Additionally, Amazon, Apple, and Meta Platforms investors are also processing two other bits of news that could be causing their stock prices to fall.
The first is that some bond yields reached nearly two-year highs last week. The two-year Treasury note topped 1% last week, the highest it’s been in nearly two years. And the 10-year note hit 1.86%, the highest level since January 2020.
The rates have since fallen a bit but still remain at elevated levels compared with last year. Higher bond yield rates generally hurt tech stock prices because it means that the company’s future earnings will be worth less than they would have been if bond yields had remained lower.
Making matters worse is the fact that Netflix, one of the core FAANG stocks (of which Amazon, Apple, and Meta are also a part) has been tumbling since it released disappointing fourth-quarter results last week. Netflix is down 30% since the earnings release.
As a result of all of this, Amazon’s stock is down nearly 16%, Apple has fallen 11%, and Meta Platforms has tumbled 12% since the beginning of this month. The broader market isn’t doing much better, with the S&P 500 down 10% since the beginning of January.
Now what
Amazon, Apple, and Meta Platforms investors may want to brace for a bit more volatility, at least in the short term. The Fed will finish its policy meeting on Wednesday, and any new information about interest rates that’s released from that meeting could cause a market reaction.
But long-term investors should be less concerned about what the Fed is doing. Nothing has fundamentally changed with Amazon’s, Apple’s, or Meta Platforms’ underlying businesses over the past several weeks.
Panic selling based on higher bond yields or rising interest rates could leave investors missing out on the long-term gains that investors with cooler heads could experience in the coming years.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
