January 31, 2023

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What started as a third-quarter rebound turned into a flop for tech investors.

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The Nasdaq Composite fell 5.1% this week after plunging 5.5% last week. This is the worst two-week stretch for the tech-heavy index as it fell over 20% in March 2020 at the start of the Covid-19 pandemic in the US.

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With the third quarter ending next week, the Nasdaq is headed for a loss for the third straight quarter unless it can erase the 1.5% decline in the last five trading days of that period.

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Investors have been dumping tech stocks since late 2021, betting that rising inflation and high interest rates will have an outsized impact on companies that rallied the most during boom times. The Nasdaq is now slightly above its two-year low in June.

Markets were hit by continued rate hikes by the Fed, which on Wednesday raised benchmark interest rates by another three-quarters of a percentage point and indicated it would continue hiking well above current levels as it pushes inflation to its highest level. Tries to bring it down. in the early 1980s. The central bank took its federal funds rate to a range of 3%-3.25%, the highest since early 2008, after a third consecutive 0.75 percentage point move.

Meanwhile, as rising rates push the 10-year Treasury yield to its highest level in 11 years, the dollar is strengthening. This makes American products more expensive in other countries, which hurts tech companies heavily on exports.

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“It’s a one-two punch on technology,” Cressett Capital’s chief investment officer Jack Ablin told CNBC’s “TechCheck” on Friday. “A strong dollar doesn’t help technology. Higher 10-year Treasury yields don’t help technology.”

Among the group of mega-cap companies, Amazon had the worst week, clocking close to 8%. Google parent Alphabet and Facebook parent Meta each fell by about 4%. All three companies are in the midst of a cost-cutting or hiring freeze, as they consider weak consumer demand, with some combination of lower advertising spending and inflationary pressures on wages and products.

As CNBC reported on Friday, Alphabet CEO Sundar Pichai faced heated questions from employees at an all-round meeting this week. Employees expressed concern about cutting costs and Pichai’s recent comments that productivity needs to be improved by 20%.

Tech earnings season is about a month away, and growth expectations are muted. Alphabet is expected to report single-digit revenue expansion after growing more than 40% a year ago, while Meta is seeing a second straight quarter of falling sales. Apple’s growth is expected to come in at just over 6%. Expectations for Amazon and Microsoft are higher by 10% and 16%, respectively.

The latest week was a particularly difficult one for some companies in the sharing economy. Airbnb, Uber, Lyft and DoorDash have all declined 12% to 14%. In the cloud software market, which grew rapidly in recent years before falling in 2022, some of the sharpest declines were in the shares of GitLab (-16%), Bill.com (-15%), Asana (-14%) and Confluent Was. -13%).

Cloud giant Salesforce held its annual Dreamforce conference this week in San Francisco. During part of the targeted conference on financial metrics, the company announced a new long-range profitability target that showed its determination to operate more efficiently.

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Salesforce aims to 25% Adjusted Operating MarginIncluding future acquisitions, said Chief Financial Officer Amy Weaver. This exceeds the 20% target announced by Salesforce one year ago for its 2023 fiscal year. The company is trying to push sales and marketing down as a percentage of revenue, partly through greater self-service efforts and through improved productivity for salespeople.

Salesforce shares fell 3% for the week and are down 42% for the year.

“There are a lot of things happening in the market,” co-CEO Marc Benioff told CNBC’s Jim Cramer in an interview at Dreamforce. “Between currencies and recessions or pandemics. All these things you’re navigating multiple forces.”

watch: Jim Cramer’s interview with Marc Benioff at Dreamforce