Tech stocks post worst two-week stretch since pandemic began

Pedestrians pass by the New York Stock Exchange.

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What started as a rebound in the third quarter turned into a flop for tech investors.

The Nasdaq Composite fell 5.1% this week after losing 5.5% the previous week. This marks the worst two-week period for the tech-heavy index since it plunged more than 20% in March 2020 at the start of the Covid-19 pandemic in the United States.

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With the third quarter due to end next week, the Nasdaq is poised to post losses for a third consecutive quarter unless it can erase what is now a 1.5% drop in the past five last trading days of the period.

Investors have been dumping tech stocks since late 2021, betting that rising inflation and rising interest rates would have an outsized impact on the companies that rebounded the most during boom times. The Nasdaq is now just above its two-year low set in June.

Markets were hammered by continued rate hikes from the Fed, which on Wednesday raised benchmark interest rates another three-quarters of a percentage point and signaled it would continue to climb well above the current level as it attempted to bring inflation down from its highest levels since the early 1980s. The central bank raised its federal funds rate to a range of 3% to 3.25%, the most high since the beginning of 2008, after the third consecutive movement of 0.75 percentage points.

Meanwhile, as rising rates pushed the 10-year Treasury yield to an 11-year high, the dollar strengthened. This makes American products more expensive in other countries, hurting export-heavy tech companies.

“This is a technology punch,” Jack Ablin, chief investment officer of Cresset Capital, told CNBC’s “TechCheck” on Friday. “The strong dollar isn’t helping tech. The high 10-year Treasury yields aren’t helping tech.”

Watch CNBC's full interview with Cresset Capital's Jack Ablin

Among the group of mega-cap companies, Amazon had the worst week, falling nearly 8%. Google parent Alphabet and Facebook parent Meta each slipped around 4%. All three companies are in the midst of cost cuts or hiring freezes as they anticipate a combination of weakening consumer demand, tepid advertising spending and inflationary pressures on wages and products.

As CNBC reported on Friday, Alphabet CEO Sundar Pichai faced heated questions from employees during a town hall meeting this week. Staff members expressed concern about cost reductions and recent comments from Pichai about the need to improve productivity by 20%.

Tech earnings season is about a month away, and growth expectations are subdued. Alphabet is expected to post single-digit revenue growth after rising more than 40% a year earlier, while Meta is eyeing a second straight quarter of sales declines. Apple’s growth is expected to reach just over 6%. Expectations for Amazon and Microsoft are higher, at around 10% and 16%, respectively.

The past week has been particularly difficult for some companies in the sharing economy. Airbnb, Uber, Lyft and DoorDash all suffered declines of between 12% and 14%. In the cloud software market, which has soared in recent years before plunging in 2022, some of the steepest declines have been in shares of GitLab (-16%), Bill.com (-15%), Asana ( -14%) and Confluent (-13%).

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Cloud giant Salesforce held its annual Dreamforce conference this week in San Francisco. During the financial metrics portion of the conference, the company announced a new long-term profitability target that showed its determination to operate more efficiently.

Salesforce is targeting an adjusted operating margin of 25%, including future acquisitions, said chief financial officer Amy Weaver. That’s up from the 20% target Salesforce announced a year ago for its fiscal year 2023. The company is trying to reduce sales and marketing as a percentage of revenue, in part thanks to more self-service efforts and improving salesperson productivity.

Salesforce shares fell 3% for the week and 42% for the year.

“There’s so much going on in the market,” co-CEO Marc Benioff told CNBC’s Jim Cramer in an interview with Dreamforce. “Between currencies and recession or pandemic. All of these things you kind of navigate in many forces.”

LOOK: Jim Cramer interview with Marc Benioff at Dreamforce

Watch Jim Cramer's full interview with Salesforce co-CEO Marc Benioff

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