Why Did Tech Stocks Drop This Week?

This week, tech stocks took a hit, with major players like Apple and Amazon both seeing significant drops. So, what caused this sudden shift? We take a look at some possible reasons behind the sell-off.

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The Trade War

The U.S. and China

The U.S. and China have been locked in a trade war for more than a year, with each side imposing tariffs on the other’s goods. The conflict began to heat up in early 2018, when the Trump administration imposed tariffs on imported solar panels and washing machines. China responded by slapping tariffs on $3 billion worth of U.S. products, including pork and stainless steel pipes.

The tit-for-tat escalation continued throughout 2018, as both countries imposed increasingly severe rounds of tariffs. By the end of the year, the U.S. had imposed tariffs on $250 billion worth of Chinese goods, and China had retaliated with tariffs on $110 billion worth of American products.

2019 started off with a temporary truce, as negotiators from both countries worked to hammer out a deal that would end the trade war. But those talks broke down in May, and the U.S. subsequently raised tariffs on $200 billion worth of Chinese goods from 10% to 25%. China retaliated by raising tariffs on $60 billion worth of American products.

The latest round of tariff hikes has hit the tech sector particularly hard, as many tech companies rely heavily on Chinese manufacturing for their products. For example, Apple assembles most of its iPhones in China, and it has already been hit with higher prices for iPhone components due to the tariff hike.

The Impact on Tech Stocks

The stock market has been volatile lately due to the escalating trade war between the US and China. tech stocks in particular have been taking a hit, as they are seen as more vulnerable to the tariffs.

This week, the Trump administration proposed another round of tariffs on $200 billion worth of Chinese goods. This sent the stock market tumbling, with the Dow Jones Industrial Average falling more than 700 points on Tuesday.

While all stocks are affected by the trade war, tech stocks are seen as particularly vulnerable. This is because many tech companies rely on China for manufacturing and assembly, and also because they sell a lot of their products to China.

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Apple (AAPL) is one example of a tech stock that has been hit hard by the trade war. The company has already warned that tariffs will cause its prices to rise, and its share price has fallen more than 10% since early July.

Other major tech stocks such as Amazon (AMZN) and Microsoft (MSFT) have also been affected by the trade war, though not to the same extent as Apple. Both companies have reported strong earnings in recent months, but their share prices have still fallen by around 5% since July.

The trade war is not just affecting tech stocks; it is also having an impact on the overall economy. The US-China trade war could shave 0.5% off global economic growth next year if it continues to escalate, according to a new report from Goldman Sachs. This would be bad news for everyone, not just tech investors.

The Fed’s Interest Rate Hike

The Effect on the Stock Market

The Federal Reserve’s interest rate hike this week caused a sell-off in the stock market, with the Nasdaq Composite Index dropping more than 4 percent. The tech-heavy index is down more than 10 percent from its record high set just two weeks ago.

The Fed raised its benchmark interest rate by a quarter point to a range of 0.5 percent to 0.75 percent on Wednesday, as expected. But the central bank also signaled that it expects to raise rates three times in 2017, instead of the two rate hikes it had previously forecast.

That sent shockwaves through the stock market, particularly among tech stocks, which have been among the biggest beneficiaries of the low-interest-rate environment that has prevailed since the financial crisis.

The Fed’s rate hike is “a body blow to tech stocks and other growth sectors that have come to rely on easy monetary policy for sustenance,” said Joseph Saluzzi, co-founder of Themis Trading and author of “Broken Markets: How High Frequency Trading and Predatory Practices Are Destroying Investor Confidence and Your Portfolio.”

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The Impact on Tech Stocks

The Federal Reserve’s interest rate hike this week was widely expected, but it still sent shockwaves through the stock market – particularly in the tech sector.

Technology stocks have been on a tear in recent years, as investors have poured money into the sector betting on strong growth prospects. But those same high growth prospects make tech stocks particularly sensitive to changes in interest rates.

When rates go up, it makes borrowing more expensive for companies, which can hit their bottom lines and weigh on stock prices. That’s why the Fed’s rate hike this week drove shares of many tech companies lower.

The sell-off was particularly acute for so-called “FANG” stocks – Facebook, Amazon, Netflix and Google parent Alphabet – which have been leading the market higher in recent years. All four shares tumbled on Wednesday, with Amazon and Netflix falling more than 4%.

The Fed’s rate hike may have also spooked investors who are worried about valuations in the tech sector. Many tech stocks are trading at lofty levels, and any hint of slowing growth could trigger a sharp sell-off.

For now, the Fed’s rate hike is just a small speed bump for the tech sector. But if rates continue to rise, it could become a bigger problem for the market’s hottest stocks.

Brexit

tech stocks dropped this week due to Brexit. Britain’s vote to leave the European Union sent shockwaves through the global financial markets, and nowhere was the impact more keenly felt than in the tech sector. The Nasdaq Composite Index, home to many of the world’s biggest tech stocks, fell 5.4% on Friday, its worst day since August 2011.

The U.K.’s Exit from the E.U.

On June 23, 2016, the United Kingdom held a referendum to vote on whether or not to remain a part of the European Union. A slim majority of voters (52%) chose to leave the E.U., and on March 29, 2017, Prime Minister Theresa May formally invoked Article 50 of the Lisbon Treaty, beginning the process of negotiating the U.K.’s withdrawal from the bloc.

The U.K.’s departure from the E.U. is widely expected to have negative consequences for both the British and European economies. Many large businesses have already announced plans to relocate their operations outside of the U.K., and there is significant uncertainty about what kind of trade agreement will be reached between the U.K. and E.U. once negotiations are finalized.

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In the short-term, there has been considerable volatility in global financial markets as investors grapple with the implications of Brexit. In particular, tech stocks have been hard hit, with many companies seeing their share prices drop sharply this week.

The Impact on Tech Stocks

The impact of Brexit on tech stocks has been significant. For example, the week after the Brexit vote, Apple’s stock price dropped by 6%. The stock prices of other major tech companies, such as Amazon, Facebook, and Google, also fell by similar amounts.

There are a few reasons why tech stocks have been impacted so negatively by Brexit. First, many tech companies rely on the European Union (EU) for a significant amount of their revenue. For example, Apple gets about 20% of its revenue from the EU. Given the uncertainty surrounding Brexit, companies are worried that this revenue stream could dry up if the UK leaves the EU.

Second, the UK is a major hub for tech talent. Many companies have set up operations in the UK specifically to take advantage of this talent pool. If the UK leaves the EU, it could become harder for these companies to attract and retain talent. This couldresult in a brain drain from the UK to other EU countries.

Finally, the value of the pound has dropped significantly since the Brexit vote. This has made it more expensive for US-based tech companies to do business in the UK. For example, Facebook has already said that it will raise prices for advertisers in order to offset this currency impact.

Overall, Brexit has had a negative impact on tech stocks. Companies are concerned about their revenue prospects and their ability to attract and retain talent. The drop in value of the pound has also made it more expensive for these companies to do business in the UK.

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