Tech Stocks Get Whacked

By Nicholas Jasinski |  Thursday, December 16 Growth Ouch. Yesterday's hawkish policy pivot from the Federal Reserve seemed to catch up to growth stocks today. Highly valued technology and consumer discretionary stocks sold off, dragging down the Nasdaq Composite 2.5%. The generally cheaper and more old-economy weighted Dow Jones Industrial Average slipped less than 0.1% today, while the broad S&P 500 lost 0.9%. Higher rates make future earnings worth less in the present, hitting growth stocks with far-off profits particularly hard. Value stocks, on the other hand, tend to be mature businesses whose earnings are more evenly weighted between the present and future years. Those include the likes of financials, many of which have additional positive exposure to higher interest rates: Banks can earn more on their loans when market-wide rates are higher. S&P 500 financials sector stocks jumped 1.3% today. Short-term U.S. Treasury yields declined today, while yields on more long-term securities rose. That dynamic is a steepening of the yield curve that hurts those growth-stock valuations. The Vanguard S&P 500 Growth exchange-traded fund (VOOG) tumbled 2.1% today, versus a 0.7% rise for the Vanguard S&P 500 Value ETF (VOOV). That's the biggest one-day outperformance of value over growth in over nine months. The growth versus value distinction may not matter as much in 2022 as it has most of this year, but it still certainly mattered today. Nvidia stock dropped 6.8%, Tesla slid 5%, and Apple lost 3.9%. Meanwhile Nucor jumped 5.3%, Verizon Communications rose 4.4%, and Kellogg added 3.6%. There was also plenty of monetary policy news from across the pond for investors to digest today. The Bank of England was the first major central bank to raise interest rates since the Covid-19 pandemic began, lifting its target rate to 0.25%, from 0.1%. Pierre Briançon has more on that decision from Barron's London bureau. The European Central Bank, meanwhile, said it would slow down the pace of its asset-buying program, but hold its benchmark interest rate target unchanged at minus 0.5%. Pierre also covered that move here.

 

DJIA: -0.08% to 35,897.64 S&P 500:  -0.87% to 4,668.67 Nasdaq: -2.47% to 15,180.43 The Hot Stock: Newmont +8.8% The Biggest Loser: Adobe -10.2% Best Sector: Financials +1.3% Worst Sector: Technology -2.8%