A defensive rotation continued overnight with the Nasdaq Composite (NASDAQ: .IXIC) falling 2.55%. This compares to the 1.04% fall from the S&P 500 Index (SP: .INX) and the unscathed Dow Jones Industrial Average Index (DJX: .DJI) which was down just 0.10%.
The contrasting performance of the tech-heavy Nasdaq could once again put pressure on S&P/ASX 200 Index (ASX: XJO) tech shares on Tuesday.
Why ASX200 tech shares could face more selling pressure
It’s been a challenging market for tech investors with the S&P/ASX200 Info Tech (INDEXASX: XIJ) sliding ~9.5% this month, compared to the broader ASX 200 which is up ~2%.
A similar narrative is taking place on Wall Street where the S&P 500 and Dow Jones are hovering all-time record highs, while the tech-heavy Nasdaq has slumped 5.6% in quick succession from record territory.
Last night, sectors including consumer cyclical, communication services and technology all slumped between 1.95% to 2.30%. While defensive sectors including materials, consumer defensive and utilities closed the session between 0.20% and 0.75% higher.
US tech mega caps experienced heavy selling across the board with household names including Tesla Inc, Facebook Inc, Apple Inc, Amazon.com Inc, Netflix Inc, Microsoft Corporation and Alphabet Inc all falling between 2% to 6.50%.
This could see a follow-through for ASX 200 tech shares on Tuesday, placing local tech-heavyweights such as Afterpay Ltd (ASX: APT), Xero Ltd (ASX: XRO) and Wisetech Ltd (ASX: WTC) under pressure.
Why are tech shares suddenly selling off?
One theory is that investors might be diverting attention to the prospect of higher inflation as the economy comes out of the coronavirus pandemic.
The pent-up demand could drive an increase in prices, which could eventually prompt central banks to take the brakes off record low interest rates. This could in turn weigh on the valuations of richly valued shares including ASX200 tech shares.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. 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 recommends Alphabet (C shares), Amazon, Apple, Microsoft, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares in Wisetech, Xero and Afterpay and recommends the following options: long January 2022 $1920 calls on Amazon, short March 2023 $130 calls on Apple, short January 2022 $1940 calls on Amazon, and long March 2023 $120 calls on Apple. The Motley Fool Australia has recommended Alphabet (C shares), Amazon, and Apple. 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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