Marketbites: Strong $ Threatens Tech Stocks
Portfolio Manager Commentary:
All three major U.S. indices ended in the red yesterday, giving back some of the sharp gains from Monday and Tuesday. The indices were only slightly down with the S&P falling 0.20%, the Dow dropping 0.14%, and the Nasdaq declining 0.25%. Markets had been coming off of their best two-day stretch in more than two years. “It’s a moment of pause for the market to reflect on how durable the rally the past two days actually could turn out to be,” said Yung-Yu Ma, chief investment strategist for BMO Wealth Management.
On top of inflation and rising interest rates, the strong U.S. dollar is posing a major threat to large technology companies. Big tech companies generate 58% of their revenue outside of the U.S., the highest share of any of the S&P 500’s 11 groups. When the dollar strengthens, sales that companies earn in nondollar currencies are worth less. That in turn can shave millions of dollars off company earnings. In the past, investors were sometimes able to look past currency fluctuations due to a growing economy. This year is different because economists are widely expecting a material global slowdown with a possible U.S. recession.
A lot of attention remained on Twitter a day after Elon Musk proposed to buy the company at the original deal price. Twitter stock had jumped 20% on Tuesday following the news, and fell 2% on Wednesday to settle back down.
Chart of the Day:
The brief recession at the start of the pandemic drove the unemployment rate to historic highs in April 2020. The jobless rate has since declined, but there are far more openings now than during similar periods of low unemployment over the past two decades.
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