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Stocks fell on Friday, ending what has been a miserable month for the markets, especially for Big Tech.
The Dow Jones Industrial Average lost nearly 1,000 points, while the S&P 500 lost more than 3%, with both indexes posting heavy losses in April.
But it was much worse for the tech-heavy Nasdaq, which fell more than 4% on Friday and ended down more than 10% for April, its worst month since 2008.
The deep declines reflect a period of deep uncertainty at a time when the economic landscape is rapidly changing.
Here are the top three things that make Wall Street sink.
Big Tech goes from winner to loser
The pandemic has been good for Big Tech revenues.
Buoyed by low interest rates and the sudden shift to quarantines and remote working, businesses from Netflix to Zoom have had record months for profits.
And what’s good for Big Tech is generally good for the markets given that information technology companies make up 28% of the S&P 500.
But things have changed – and quickly.
The world is learning to live with COVID. The workers return to their offices. Travel demand is booming. And the restaurants are filling up again.
This means that Big Tech is now competing with other demands on people’s time.
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Netflix shocked Wall Street last week after announcing that it had lost subscribers in the first three months of the year, the first time this had happened in over a decade. The announcement sent shares down more than 40%.
Other Big Tech companies also reported disappointing results or outlooks, with a few exceptions like Facebook’s parent company Meta.
Amazon posted its first quarterly loss since 2015 on Thursday, in part because people started shopping again in physical stores, marking a stark contrast to the pandemic when the online retailer’s profits soared.
Meanwhile, Apple posted strong results, but its share price fell after warning that COVID-19 lockdowns in China could impact supply chains, and therefore sales.
The Fed is battling inflation – and it could get tough
It’s not just Big Tech’s revenue.
The market has already been under pressure as the United States faces its highest levels of inflation in about 40 years.
This price spike has proven to be a persistent and pernicious problem for the US and global economies.
But investors are not only worried about inflation itself, which is at its highest level in 40 years, they are also unsure whether the Federal Reserve will succeed in combating it.
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At the last Fed meeting, the central bank moved to raise interest rates by a quarter of a percentage point, but Fed Chairman Powell Jerome Powell and other policymakers have since signaled that they were preparing a much more aggressive response.
The Fed is now expected to raise interest rates by half a percentage point at its follow-up meeting next week, and markets are bracing for further rate hikes this year.
“I think the market wanted the Fed to lead this fight,” said Lori Calvasina, head of US equity strategy at RBC Capital Markets. “But I think the market is thrown off balance by the idea of these big, quick increases.”
The Fed has a delicate job to do. The goal is to design a so-called soft landing. It tries to slow the economy just enough to calm inflation.
But raising interest rates is never an exact science, and investors fear the Fed may be too aggressive and unwittingly tip the economy into a recession.
Granted, a recession is still not seen as a likely outcome, but it is widely seen as a potential threat to the economy.
Then there’s China and the war in Ukraine
If the prospect of a recession were not enough, Wall Street also faces a difficult geopolitical environment.
China is implementing strict rules to tackle a spike in COVID-19 cases. Shanghai has been in lockdown for five weeks now, and the government has closed ports and factories in some of the country’s biggest cities.
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The consequences of this crackdown could have repercussions around the world.
During the pandemic, supply chain issues have proven to be a huge problem, helping to fuel higher prices. Manufacturing slowed and deliveries were delayed. Now, there are fears that supply chain issues may not linger much longer.
Meanwhile, Russia’s invasion of Ukraine continues to impact businesses while putting pressure on commodity prices.
Since late February, Brent, the international oil benchmark, has been trading above $100 a barrel. Previously, it was trading in the $70-$80 range.
But it’s not just energy prices that have gone up. Due to the incursion and trade sanctions and restrictions imposed by the United States and its allies, grain and metal prices have also soared.
Apple CEO Tim Cook warned of global challenges when presenting earnings this week.
“I want to acknowledge the challenges we face, from supply chain disruptions caused by both COVID and silicon shortages to the devastation of war in Ukraine,” he said during the talk. the call.