Global stocks kicked off their worst week in more than a year as big Netflix stock losses highlighted a sell-off of technology stocks that began to spill over into other sectors.
Investors were rushing from speculative corners of the market while the Federal Reserve tightened financial conditions. The decline in stocks was particularly extreme in the US, where many of last year’s high-tech companies are located.
The technically heavy Nasdaq Composite Index fell 6.2 percent this week, its biggest drop since a coronavirus pandemic rocked U.S. financial markets in March 2020.
The S&P 500 blue-chip index, which is closely monitored by the US $ 50 trillion barometer, fell 4.9 percent over the past week. More than 60 percent of companies within the index are now in technical correction – or down at least 10 percent from a record high – including 130 stocks that have fallen 20 percent or more.
The FTSE All-World Index of Shares in Developed and Emerging Markets has fallen about 3.5 percent since last Friday, leaving it on track to record its biggest weekly decline since October 2020.
Withdrawals in stock markets have prompted many investors to buy derivatives to protect themselves from further declines. The volume of put options in the U.S., which can be redeemed if a stock or index falls in value, rose above 23 million contracts late in the trading day. The level of activity made Friday one of the five busiest days of options trading in history, with more than an hour of the remaining session.
Among the hardest hit U.S. stocks was Netflix, which fell 21 percent on Friday after a streaming group warned that subscriber growth would considerably slow. The decline has reduced about $ 45 billion from his estimate, or roughly the market capitalization of food group Kraft Heinz.
“Some kind of contagion from technology to others was inevitable at some point,” said Luca Paolini, chief strategist at Pictet Asset Management. “When you have these kinds of losses, they affect your mood, and everything else falls apart.”
The move from highly regarded and fast-growing companies such as Netflix on Friday marked the final phase of a pullback that resonated in global financial markets as investors struggled with the U.S. central bank dramatically changing monetary policy.
Traders expect the Federal Reserve to raise interest rates four times this year and suspend other stimulus measures that have helped kick-start the stock market since the start of the pandemic. That turnaround from the Fed was acutely felt in the $ 22 billion Treasury market, the backbone of the global financial system and the market that serves as a benchmark for all other assets.
Yields on treasuries have risen this year, leading to a powerful stock market rotation from technology stocks to stocks of companies whose wealth is tied to economic recovery from coronavirus shocks.
These higher yields have diminished the attractiveness of so-called growth stocks, whose valuation relies on future profits that will not be realized for many years to come.
Even as government bond prices strengthened on Friday, continuing the growth that began in the previous session, the so-called 10-year real yield continued to rise, briefly reaching minus 0.54 percent, the highest level since February 2020.
Other assets that were in vogue also had a turbulent start to the year as real returns rose minus 1.1 percent at the end of 2021. Bitcoin, a highly speculative asset that reached its highest level in history in November 2021, fell 17 percent in 2022 The Goldman Sachs index of unprofitable technology stocks lost a fifth of its value over the same period.
“The stock market has become very bad [over the prospect that] The Fed will be forced to act, ”added Jim Tierney, a fund manager focused on stock growth at AllianceBernstein. “The Fed has never been a hyper-hawk in the last 20 years – in most of our investment careers – but the market is now setting prices in the idea that it will have to be.”
Stock markets also fell across Europe, with the Stoxx 600 regional capital index falling 1.4 percent during the week, its third consecutive weekly loss.