Nasdaq suffers worst month of the year
The tech-heavy Nasdaq index fell 1.9% on Tuesday, closing at 13,059.47, its lowest level since May. The index suffered its worst month of the year in September, declining 5.8%. While it is still up 25% this year, the Nasdaq is facing a rocky start to October as a spike in interest rates pushes investors out of risky assets.
The rise in interest rates is driven by the Federal Reserve’s plan to keep monetary policy tight for longer, amid concerns of high inflation and energy prices. The Fed announced last month that it would start tapering its bond-buying program by the end of the year and signaled that it could raise interest rates as soon as next year.
The 10-year Treasury yield, which reflects the cost of borrowing for the government and influences other interest rates, climbed to 4.8% on Tuesday, reaching its highest level since 2007. The 30-year Treasury yield also rose to its highest since 2007.
Higher interest rates make bonds more attractive to investors, reducing the demand for stocks, especially those with high valuations and uncertain earnings prospects. Tech stocks, which have been the main drivers of the market rally during the pandemic, are particularly vulnerable to this shift.
Airbnb leads tech sell-off
Among the tech stocks that took a hit on Tuesday, Airbnb was the worst performer, dropping 6.5% to $123.45. The online travel platform was downgraded by analysts at KeyBanc Capital Markets, who lowered their earnings expectations for the company through 2025.
The analysts cited a slowdown in leisure travel as consumers shift back to buying more physical goods and services. They also warned that Airbnb’s growth in room nights and experiences, as well as its average daily rate, could be hurt by increased competition and regulation.
Airbnb’s stock has been volatile since its debut on the Nasdaq in December 2020. It soared in early 2021 as the company benefited from the surge in domestic travel during the pandemic, but then slumped in mid-2021 as Covid-19 cases rose again and travel restrictions were reimposed. It bounced back in early 2023, but has been under pressure lately due to rising interest rates and macroeconomic uncertainties.
Amazon leads mega-cap tech decline
Among the mega-cap tech companies, Amazon had the biggest decline on Tuesday, falling 3.7% to $124.72. The e-commerce giant is facing multiple challenges, including a potential antitrust lawsuit from the Federal Trade Commission (FTC), a possible government shutdown that could affect its cloud business, and a disappointing holiday shopping season.
The FTC is reportedly preparing to file a lawsuit against Amazon, accusing it of abusing its dominant position in online retail and harming competition. The FTC has been investigating Amazon’s business practices for over a year and has recently appointed a prominent critic of Big Tech, Lina Khan, as its chairwoman.
Amazon is also exposed to the risk of a government shutdown, which could happen if Congress fails to pass a spending bill by Thursday. Amazon Web Services (AWS), the company’s cloud computing division, is a major contractor for the federal government and could lose revenue if some of its customers are forced to suspend their operations.
Moreover, Amazon is likely to face a tough holiday shopping season this year, as supply chain disruptions and labor shortages could hamper its ability to deliver goods on time and at low prices. Amazon has already warned that its third-quarter revenue could fall short of analysts’ expectations due to these challenges.
Microsoft and Meta also slide
Microsoft and Meta, formerly known as Facebook, also slid on Tuesday, losing 2.6% and 1.9%, respectively. Both companies are facing regulatory scrutiny and legal battles over their market power and social impact.
Microsoft is being sued by Slack Technologies, which accuses it of illegally bundling its Teams app with its Office suite to stifle competition in the workplace collaboration market. Microsoft denies the allegations and says that Teams is a complementary product that enhances Office’s functionality.
Meta is facing multiple lawsuits from state attorneys general, who allege that it has violated antitrust laws and consumer protection laws by acquiring rivals such as Instagram and WhatsApp and by failing to protect users’ privacy and safety. Meta denies any wrongdoing and says that it operates in a competitive and dynamic market.
