The Australian share market fell to its lowest level in two months as investors dumped big tech stocks amid rising interest rates and earnings concerns.
The Australian share market fell to its lowest level in two months on Friday, as investors dumped big tech stocks amid rising interest rates and earnings concerns. The S&P/ASX 200 index closed down 73.50 points or 0.95% at 7,625.90, after hitting a new 52-week high on Thursday. The index lost 0.8% for the week, its second consecutive weekly decline.
The sell-off in big tech stocks was triggered by disappointing earnings results and guidance from some of the US tech giants, such as Apple, Amazon and Meta, which weighed on the Nasdaq Composite index, which dropped 2.6% overnight. The rising bond yields also dampened the appeal of the growth-oriented tech stocks, as the US 10-year Treasury yield climbed to 1.77%, its highest level since June 2020.
The information technology sector was the worst performer on the ASX, plunging 3.6%, followed by the materials sector, which dropped 2%. The energy, utilities and financial sectors also fell more than 1%. The only sector that managed to eke out a gain was the health care sector, which rose 0.1%.
Some of the big tech stocks on the ASX suffered heavy losses, while some of the mining stocks bucked the trend
Some of the big tech stocks on the ASX suffered heavy losses, as they mirrored the weakness of their US counterparts. Afterpay, the buy now, pay later company that is being acquired by US fintech giant Square, slumped 6.4% to $96.50, its lowest level since November 2020. Xero, the cloud accounting software provider, tumbled 5.9% to $139.50, its lowest level since August 2020. WiseTech Global, the logistics software company, fell 4.9% to $38.50, its lowest level since October 2020.
However, some of the mining stocks bucked the trend, as they benefited from the strength of the commodity prices, especially iron ore, which surged to a four-month high of $US123.50 a tonne. BHP, the world’s largest miner, gained 1.4% to $40.80, its highest level since July 2020. Rio Tinto, the world’s second-largest miner, added 0.9% to $107.50, its highest level since September 2020. Fortescue Metals Group, the world’s fourth-largest iron ore producer, rose 0.8% to $19.70, its highest level since November 2020.
The big question for investors is how much big tech is too much, and whether the sector can regain its momentum
The big question for investors is how much big tech is too much, and whether the sector can regain its momentum, as it faces multiple headwinds, such as rising interest rates, slowing growth, regulatory scrutiny, and competition. The big tech stocks have been the main drivers of the global stock market rally in the past decade, as they capitalized on the digital transformation and the innovation trends. However, their valuations have also reached lofty levels, making them vulnerable to corrections and rotations.
According to Jason Hollands, managing director of investing platform Bestinvest by Evelyn Partners, investors should not get too carried away with the idea that they should just throw their lot in with tech stocks, as the sector is not immune to risks and challenges. He said that investors should diversify their portfolios and balance their exposure to different sectors and regions, and not put all their eggs in one basket.
He also said that investors should be selective and careful when investing in tech stocks, as not all of them are created equal, and some of them may have better prospects and fundamentals than others. He said that investors should look for tech stocks that have strong competitive advantages, loyal customers, recurring revenues, and positive cash flows, and avoid tech stocks that are overhyped, overvalued, or unprofitable.
