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Long-term Impact of Tech Stocks on Markets

Updated: Dec 16, 2022

We are currently witnessing a tech bear market, and many investors are comparing it to the 2008 Dot-Com crash. Nasdaq and S&P 500 have witnessed corrections upwards of 20 percent from the start of the year.

The first three months of 2022 have only brought volatility for tech stocks, forewarning more downs than ups to come. Stocks of Meta, Google, and Netflix underwent serious dips, accentuating panic and uncertainty in the market.

Frenzied investors are going for large sell-offs as the trust in tech dwindles, creating a feedback spiral of more sell-offs and further devaluation of stocks. These reasons intertwine and compound each other to create the circumstances responsible for the tech crash.

Let's examine the main reasons for the recent dive in tech stock prices:

Reason for Stock Price Plunge

1. Rising Interest Rates and High Inflation

The inflation rate is at an all-time high across the world. Banks are increasing interest rates to counterbalance inflation. As a result, it has slowed down the economy and reduced the purchasing power of the population.

Reluctance to invest in stocks is rising as household and commodity prices soar. The tech companies that thrived on cheap interest rates find it harder to sustain growth and support expansion.

2. Post-Pandemic Drop in Growth

Throughout the pandemic, tech companies grew manifolds in revenue, boosted by the shift from offline to online. Companies like Zoom, Discord, and Netflix that facilitated remote work and entertainment became big players in their market.

As the revenue snowballed, investors pooled more capital in these companies in the hope of greater returns. And great returns they did get. But the pandemic wasn’t going to last forever. As physical restrictions loosened, the ‘tech bubble’ crumbled, sending the prices on a nosedive.