Why have tech stocks been on the decline in 2022?

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Why have tech stocks been on the decline in 2022?

Tech companies have seen their share prices falling in the first couple of weeks of the ongoing year.
Image source: © Stbernardstudio | Megapixl.com

Highlights

  • Tech companies have seen their share prices falling in the first couple of weeks of the ongoing year.
  • On 24 January 2022, Australia's technology stocks dropped to an eight-month low, losing 1.6%, after Wall Street's tech rout in the last session.
  • Zip Co Ltd (ASX:Z1P), Xero Ltd (ASX:XRO), and Appen Ltd (ASX:APX) were among the major losers.

Publicly listed tech firms across the world found themselves in a tight spot in 2022 as concerns over rising inflation and interest rates kept investors on the tenterhooks. The tech companies have seen their share prices fall in the first couple of weeks of the ongoing year.

ASX-listed tech stocks have declined, taking weak cues from their US peers. The NASDAQ 100 Technology index, which includes major players such as Apple, Microsoft, and Alphabet, lost 12% of its value in the first 21 days of the year.

On 24 January 2022, Australia's technology stocks dropped to an eight-month low, losing 1.6%, after Wall Street's tech rout in the last session. Zip Co Ltd (ASX:Z1P), Xero Ltd (ASX:XRO), and Appen Ltd (ASX:APX) were among the major losers.

What is driving the fall?

The US market traded on an uncertain note in the early days of the year as investors cautiously await potential hawkish signals by the US Federal Reserve at a policy meeting on January 25-26.

Investors expect the meeting to confirm that Fed may soon start draining the massive amount of liquidity that has boosted growth stocks in past few years. Markets overwhelmingly expect a 0.25% rate hike in March and three more by the year-end.

Tech stocks have faced more pressure than others as higher bond yields make their often-far-off future earnings look less attractive. In such a scenario, investors look for so-called value stocks such as banks, whose prospects are more closely linked with the economy, inflation, and interest rates.

Back in Australia, domestic consumer price figures and more hawkish Fed could also set the stage for the Reserve Bank of Australia (RBA) meet next week, where it may end its bond buying in February and reinforce market wagers for a hike as soon as May or June.

Currently, Australia's official interest rate is sitting at 0.10%, a historic low. RBA has not increased the cash rate since November 2010.

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