Global equities headed for their worst week in almost a year as a heavy retreat in Netflix shares highlighted the high stakes for corporate earnings season and selling in tech stocks spread to other sectors.
The FTSE All-World index of developed and emerging market shares has fallen about 3 per cent since last Friday, leaving it on course to record its steepest weekly decline since February 2021.
Shares in Netflix, a member of the club of big tech companies known as the “Faangs”, plummeted 21 per cent on Friday after the streaming group warned late the previous day that subscriber growth would slow substantially. The tumble shaved about $45bn from its market value.
Trading on Wall Street more broadly was choppy on Friday. The tech-heavy Nasdaq Composite fell as much as 2.1 per cent, before trimming its losses to about 1 per cent by lunchtime. It marked the second straight day of big swings. The broader S&P 500 was down 0.6 per cent at midday in New York.
Stock markets fell across Europe, with the regional Stoxx 600 equity gauge down 1.8 per cent as its tech, banking and oil and gas sub-indices all came under significant pressure.
The fall in Netflix on Friday marked the latest stage of a pullback in the shares in quickly growing companies that fuelled Wall Street’s rally since the lows of March 2020. Other assets that had been in vogue have also had a turbulent start to the year. Bitcoin, a highly speculative asset that reached an all-time high in November 2021, has fallen 16 per cent in 2022 while an index of unprofitable tech stocks collated by Goldman Sachs has shed a fifth of its value over the same time period.
“Some kind of contagion from tech to the rest was inevitable at some point,” said Luca Paolini, chief strategist at Pictet Asset Management. “When you have these kinds of losses they affect sentiment and everything else goes down.”
Investors worldwide have spent this year so far grappling with how to adjust their portfolios for the prospect of the US central bank raising interest rates about four times this year.
Such predictions initially caused a powerful stock market rotation out of tech stocks and into shares of businesses whose fortunes are pegged to the economic rebound from the shocks of coronavirus.
But investors were “suddenly realising that higher interest rates are going to be an impediment to sustained [economic] growth this year”, said Guillaume Paillat, multi-asset fund manager at Aviva Investors.
“The equity market has become very bearish [over the prospect that] the Fed will be forced to act,” added Jim Tierney, a fund manager focused on growth stocks at AllianceBernstein. “The Fed has never in the last 20 years — in most of our investing careers — been hyper hawkish, but the market now is pricing in the idea that they are going to have to be.”
US Treasuries firmed on Friday, extending a rally that began in the previous session. The yield on the 10-year US Treasury note fell 0.07 percentage points to 1.76 per cent as its price rose, bucking a trend where traders have sold the benchmark debt instrument in anticipation of the Fed reversing its policy of buying debt assets to suppress borrowing costs.