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Tech stocks are taking a beating, with the Nasdaq Composite (^IXIC) posting its third straight loss and continuing its 26% decline this year.
DocuSign (DOCU) is 80% in the red and Paypal (PYPL) is 75% off. These are some of the challenges faced by individual investors in the sector.
This was a tough pill to swallow for investors considering opening their brokerage statements.
But the pain may not end anytime soon.
“The reality is we’re still in the midst of high inflation and tight monetary policy,” said Liz Young, head of investment strategy at Sophie. “As long as those prices are high, we have a head for technology — or at least we have some sort of ceiling on those high-growth stocks.”
Fiscal and monetary stimulus has benefited high-growth names based on low interest rates. These stocks have taken the brunt of the market’s decline as the Federal Reserve moves to tackle runaway inflation by raising interest rates.
In the case of technology investors, risk-free rates are more challenging valuations.
After a high jaunt through the trigger-laden skies, the multiples are returning to Earth. That said, the price-to-earnings ratio is sinking, as earnings remain flat — below $200 per share for the S&P 500 (^GSPC).
And let’s not even get started on stocks rated on price-to-sales ratios.
To get that “P/E” back up, prices must rise or earnings must fall. As we head into the earnings season, it may become clear which way this dam will break.
Still, it’s too early to tell, and besides, P/E ratios don’t pay the bills – only value does.
However, rising prices and slowing growth have fueled fears of a recession, prompting bond traders to start betting on future rate cuts.
Some measures of the bond market have been eased by the Fed as early as the first quarter of 2023. Low rates and easy monetary policy may be just what tech investors need to get back on track.
If there are fears of a recession in the economy, the 10-year could still come down from here, Young says. “That’s typically a tailwind for those growth stocks.”
Unfortunately, for battered investors looking to recoup heavy losses, recovery could still take years.
All it takes is to see how difficult it can be to get some of the major players back to record highs quickly from the last two market busts.
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Jared Bleecker is a reporter for Yahoo Finance Live Markets. Follow him. @SPYJared.
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