Fed, Netflix earnings cast clouds over 2023’s tech-stock surge

economictimes.indiatimes.com:

That was evident Thursday, when the technology-heavy Nasdaq 100 Index dropped by the most in five months as disappointing earnings reports from Netflix Inc. and Tesla Inc. dampened the outlook for the sector.

At the same time, strong employment data underscored worries that the Federal Reserve may not be on the verge of ending its most aggressive monetary policy tightening in decades. And bigger tests are coming soon. Next week, around 170 companies in the S&P 500 Index, representing 40% of its market capitalization, are set to post results, including tech bellwethers Microsoft Corp., Meta Platforms Inc.

and Google parent Alphabet Inc. And on Wednesday, after the Fed announces its latest decision on interest rates, Chair Jerome Powell will provide clues on whether investors were correct to wager that its expected quarter-point rate hike will be its last. “The number one concern for investors in the second half of the year is all about the Fed,” said Eric Diton, president and managing director of Wealth Alliance.

“If there are more hikes than Wall Street expects, it will be bad for tech and growth stocks. Valuations need to come down.” Growth stocks are highly sensitive to interest rates, which are used to calculate what earnings in the years ahead are worth right now. Tech has rallied this year as its profits have proven to be resilient and the Fed started to slow down the pace of its rate hikes, even keeping them steady at the last meeting.After this year’s advance, spurred in part by excitement over artificial intelligence breakthroughs, valuations have gotten lofty.