Technology stocks are taking a tumble this week, and hedge funds are doing some major selling.
In the four trading sessions through Tuesday, hedge funds dumped the highest dollar amount of software and semiconductor-maker stocks in 10 years, according to Goldman Sachs data cited by Bloomberg.
Tech stocks are falling as interest rates rise and the Federal Reserve has taken a more hawkish stance on monetary policy.
Higher rates hurt technology stocks because they lower the value of tech companies’ future earnings streams relative to interest income derived from bonds.
Wednesday’s minutes from the Fed’s policy meeting last month said rampant inflation and a red-hot job market could require rate hikes “sooner or at a faster pace than participants had earlier anticipated.”
That led many economists and investors to forecast a rate increase for March, after the Fed’s planned completion of its bond-purchase tapering that month. The CME FedWatch tool indicates federal funds traders see a 71% chance the Fed will move in March.
The tech-heavy Nasdaq Composite Index recently stood at 14,979, down 0.8%, and has dropped 5% since Monday.
Electric-car behemoth Tesla (TSLA) - Get Tesla Inc Report, streaming major Netflix (NFLX) - Get Netflix, Inc. Report and chipmaker Advanced Micro Devices (AMD) - Get Advanced Micro Devices, Inc. Report were among the Nasdaq's biggest losers Thursday.
But bank stocks, including Bank of America (BAC) - Get Bank of America Corp Report, Citigroup (C) - Get Citigroup Inc. Report and Wells Fargo (WFC) - Get Wells Fargo & Company Report rose amid the focus on interest-rate increases.
Rising rates help banks because they often are able to increase the interest rates they charge for loans faster than they raise the rates at which they pay depositors.