Severe correction on Wall Street, which marks its worst week since the outbreak of the Covid-19 crisis. Carried away by the poor results of Netflix, which announced a number of new subscribers lower than expected, the Nasdaq, the index rich in technological values, fell, Friday January 21, by 2.72% while the broader index S&P 500 yielded 1.89%.
The markets are experiencing the onset of panic, now convinced that the US Federal Reserve (Fed, central bank) will raise its rates at least four times this year to counter inflation, which reached 7% in December 2021.
The Nasdaq was on its fifth consecutive day of decline. The index has lost 12% since the start of the year and 15% since its peak at the end of November 2021. We are therefore in a so-called correction zone. The S&P 500 index is down 7.7% since the start of the year and down 8.7% from its January 4 high.
In fact, the correction started as early as fall 2021 for high-growth tech stocks, when it turned out that Fed rates were going to go up – the distant and uncertain profits of these companies are worth less if the rate discount is higher. One of these values announces a disappointing result, and the correction was brutal.
Underground Storm
Today, companies boosted by containment such as Zoom (videoconferencing) and Teladoc (telemedicine) have seen their prices divided by four from their highest while those of Square (fintech) or Twitter have been divided by 2.5. This phenomenon went unnoticed by the general public, with investors selling their growth stocks to buy Gafam securities (Google, Amazon, Facebook, Apple, Microsoft), which they considered as safe as Treasury bonds. The clue did not move, despite the underground storm.
Above all, stockholders did not really believe the American central bank when it announced, at the end of its December 2021 meeting, that inflation was not temporary and that there would undoubtedly be three rate increases in 2022. It was not until the publication of the minutes of the institution’s debates, at the beginning of January, that the markets took fright. Ten-year interest rates rose from 1.5% to 1.75%, and even the stars of the stock market fell. Apple, Microsoft, and Google have lost between 11% and 15% since their high, Facebook, Tesla and Amazon between 20% and 25%, Nvidia a third and Netflix nearly 43% of its value.
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