What happened.
The market generally recovered this morning, after last week’s massive sell-off, and that helped lift the stock prices of many tech companies today. As a result, Amazon (AMZN 2.32%) is up 3.8%, Nvidia (NVDA 4.32%) is up 6.5%, and Meta Platform (META -4.09%) is up 2.5% and as of 11:07 a.m. ET.
Investors seemed to return to some optimism that the market might be at the bottom and started buying up some technology stocks again.
So what.
Stocks fell last week after the Federal Reserve raised the federal funds rate by 75 basis points, the highest rate hike since 1994. While investors processed the increase, they also expected another rate hike of the same amount at the next Federal Reserve meeting in July.
Shares of Amazon, Nvidia, and Meta were not immune to the sell-off, and they all collapsed last week.
Technology stocks have been particularly vulnerable to negative investor sentiment lately, as the sector is generally considered more speculative than some other types of investments.
Amazon, Nvidia and Meta have fallen as investors fear that higher interest rates could spur a significant slowdown in economic growth or perhaps even a recession. A slowdown in the economy could hurt Amazon’s e-commerce business and limit spending on Nvidia’s chips. In addition, a slowdown could also hurt Meta’s advertising business.
But today’s earnings from Amazon, Nvidia and Meta show that at least some investors believe that the recent drop in stock prices may have bottomed out. Of course, there’s no guarantee that this is the case, but some investors may think the market has already factored in the Fed’s aggressive rate hike.
Now what
The Federal Reserve is trying to tame inflation – – which has reached a 40-year high – and has indicated that it is committed to additional aggressive interest rate hikes to bring it down.
Fed Chairman Jerome Powell said last week that “a 50 or 75 basis point increase seems most likely at our next meeting.” Powell added that he does not expect a 75 basis point increase to be common.
Essentially, this means that the market is not out of the woods yet. Even if some investors factor in another rate hike at next month’s Fed meeting, any additional negative news about the economy – or if inflation remains stubbornly high – and the market could see an even bigger decline.
All of this means that while it’s nice to see Amazon, Nvidia and Meta climbing today, investors should have a long-term view of these tech giants. If their stock prices fall again later this week, investors should remember that buying good companies – and holding them for at least five years – is the best way to profit in the market.
