Wall Street’s weak overnight performance and surging bond yields paved the way for another weak session for ASX 200 tech shares.
The tech-heavy Nasdaq Composite fell 93 points or 0.64%. Meanwhile, the S&P 500 and the Dow Jones Industrial Average closed a respective 0.69% and 0.72% lower.
Despite it only being Tuesday, the S&P/ ASX 200 Info Tech (INDEXASX: XIJ) index has already declined 4.1% so far this week.
What’s driving ASX 200 tech shares lower?
Tech investors continue to fixate on bond yields, most notably the US 10-year Treasury yield which surged to a 5-month high of 1.64% during overnight trade.
Treasury yields have pushed higher after the US Federal Reserve hinted that it may soon wind back its asset purchasing program and eye a rate hike in late 2022.
The Fed, and central banks globally, are concerned about persistently high levels of inflation.
Factors such as elevated demand, surging energy prices and supply-side shortages are driving up core consumer prices.
“High or rapid increase in energy costs have triggered recessions in the past and there is a possibility that history could repeat itself if energy prices continue to rise. Higher energy prices result in lower disposable income for consumers,” Bernstein’s Neil Beveridge said, according to CNBC.
Rising bond yields and the prospect of higher interest rates in the US have weighed on ASX 200 tech shares.
After all, higher interest rates make all-important future cash flows appear less valuable in the present.
Tech shares are sometimes referred to as “long duration” assets as they are expected to deliver a higher proportion of cash flows in the distant future.
This is why richly-valued tech shares are cratering under the prospect of higher interest rates whereas strong cash flow sectors, like financials and real estate, are standing tall.
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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, MEGAPORT FPO, WiseTech Global, Xero, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO, WiseTech Global, and Xero. The Motley Fool Australia has recommended MEGAPORT FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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