(Bloomberg) — A three-week rally for technology stocks came to a halt as investors retreated from the sector, spooked by hawkish commentary from the Federal Reserve that fanned fears of a recession.
The Nasdaq 100 Stock Index slid 3.6%, putting an end to the longest weekly winning streak since November. Chipmaker Nvidia Corp. and software company Datadog Inc. each dropped more than 10%, while megacaps like Amazon.com Inc. and Alphabet Inc. sank more than 4%.
“What we saw this week is people saying, ‘Well the probability of a recession is too high for me and I’m selling,’” said Bob Doll, chief investment officer at Crossmark Global Investments.
The risk-off mood took hold on Tuesday when Federal Reserve Governor Lael Brainard suggested the central bank will rapidly reduce its bond holdings, which sent the 10-year Treasury yield up more than 30 basis points this week. Coupled with high energy prices, Covid-19 lockdowns in China and the war in Ukraine, investors sought cover in defensive sectors such as utilities and consumer staples at the expense of growth stocks.
Up until this week, investors had been piling back into technology stocks as they viewed equities as an inflation hedge amid a bond rout. At the end of last week, the Nasdaq 100 had rallied 16% from a March 14 low.
READ: Tech Goes From Haven to Hazard as Investors Fear Recession
Chip stocks, seen as a barometer of economic growth since their products are critical in a broad range of industries, were among the hardest hit this week. The Philadelphia semiconductor index sank 7.3% in its worst week since January.
In the coming days investors will be looking to inflation data, remarks by Fed officials and the start of the first-quarter earnings season that JPMorgan Chase & Co. will kick off on Wednesday.
Crossmark’s Doll views the odds of a recession as low with consumers flush with cash and a large amount of stimulus still in the economy. However, he is cautious about this reporting season.
“We need decent earnings to keep this market from going down,” he said in an interview. “We’re unlikely to get the kind of beats we got used to and spoiled with in 2021.”
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