Cathie Wood, there’s no other way to put it, the wind blew in her face. When the star fund manager gave an interview to CNBC on the beach in Miami a few days ago, the palm trees shook in the background and Wood’s long hair blew across her forehead. One could hardly describe Wood’s situation better: Because the flagship fund of the tech stock investor has lost almost half of its value since the beginning of the year. Although the Wall Street icon actually promises its investors 50 percent profit – per year, mind you.
For months, many investors had dismissed Wood’s red fund balance sheet as a special case of an extremely risky strategy, but now conventional investors are also worried about tech stocks: the shares of the streaming giant Netflix crashed by more than 30 percent in the middle of the week, within just a few hours . The tech-heavy Nasdaq Composite is already down about 17 percent year-to-date, a dramatic loss. The winners of the past decade seem to have become unloved stepchildren within weeks. Some stock market professionals are even talking about a paradigm shift on the trading floor.
The trigger should have been a message from Netflix on Tuesday evening at 10:09 p.m. sharp. In the eighth line a complicated table Financial experts had determined that the Netflix streaming service lost around 200,000 customers between January and March. “We saw a deep break with it,” says tech expert Christoph Schmidt from Fegra Capital. Netflix had previously attracted more and more customers, and at worst stagnated. But dropped? That hasn’t been the giant’s user numbers for ten years. For investors and viewers, it was like a good Netflix series: a real one plot twista radical reversal in the narrative.
The reaction on the stock exchanges was immediate, after hours the share lost a quarter of its value in less than half an hour. With the start of regular stock trading the following day, the papers increased their losses to more than 30 percent. The company promptly announced that it intends to take tougher action against password sharing in the future and may soon also show customers advertising.
Paypal, Meta, Peloton, all papers suffer
On the stock exchanges, however, it seemed as if Netflix had set an entire chain in motion like a domino. Shares in Paypal suddenly crashed, shares in Facebook parent Meta fell by eight percent, and the hyped shares in digital fitness company Peloton even fell by nine percent. “Suddenly, shares that have nothing to do with Netflix were also affected,” says market strategist Andreas Lipkow from the direct bank Comdirect.
Because suddenly investors see warning signs in almost every tech value: Apple? Could become a victim of inflation as middle-class people think twice about needing an expensive gadget. Amazon? Could have problems if there are delivery problems with Chinese goods again. The Facebook mother Meta? Could get into trouble because Facebook is no longer popular with young users, but competitor Tiktok with its video snippets. “Now we see the skid marks,” says tech expert Christoph Schmidt. Even if at least the big tech giants usually still make billions in profits.
It would be the beginning of the end of a decade-long stock market boom in big tech stocks. In some months, the five largest technology stocks alone were so important on the stock exchange that they accounted for around 25 percent of the leading US index S&P 500. So overwhelming that in some years their profits turned a mediocre stock market year into a good one. So hyped that some professional investors actually used Apple shares as a parking space for excess money like a call money account in times of negative interest rates. The motto: Nothing can actually go wrong. “But nothing is set in stone,” says fund manager Christoph Schmidt.
Experts do not even see the greatest threat to the boom in tech titles in corporate strategy, in the regulatory fantasies of some US politicians, or in the return of many employees from their home offices. Instead, a deeper force on the stock exchanges is affecting tech stocks: interest rates.
Smaller technology stocks in particular are suffering from high interest rates
For almost a decade, the big money managers had become accustomed to a world without interest, in which there was nothing to be gained from safe investments. Trying out risky technology stocks didn’t seem too far off, especially when investors wanted to speculate on big profits. But the world of financial markets has changed in recent months, with the US Federal Reserve raising interest rates again for the first time in March. Four of the European Central Bank’s monetary watchdogs have recently announced that they would like to raise interest rates as early as July.
Smaller tech stocks in particular suffer from higher interest rates because they finance their gigantic growth on credit. For other titles, investors only expect big profits in the distant future. A prospect that no longer seems so golden if bonds can also be used to collect good returns. And if comparatively safe ten-year US government bonds are currently yielding three percent without great risk, then many investors shy away from the volatile tech stocks anyway. “It’s an avalanche effect, and even the big tech values can no longer detach themselves,” says expert Andreas Lipkow.
Star investor Cathie Wood is not irritated by such prophecies of doom. She recently announced that in future she would only invest in titles that would be successful if interest rates remained the same. As in the casino, the 66-year-old bets on red or black – neither is possible.