ASX tech shares are having a tough day today. The S&P/ASX All Technology Index (ASX: XTX) is currently down by more than 5%.
Some of the biggest names in the technology sector are seeing the worst falls. For example:
- The Xero Limited (ASX: XRO) share price is down 12%
- The Life360 Inc (ASX: 360) share price is down 9.5%
- The Block Inc (ASX: SQ2) share price is down 15%
- The Altium Limited (ASX: ALU) share price is down 11%
- The WiseTech Global Ltd (ASX: WTC) share price is down 4.5%
- The REA Group Limited (ASX: REA) share price is down 3.5%
- The SEEK Limited (ASX: SEK) share price is down 3.7%
Not every business in the S&P/ASX 200 Index (ASX: XJO) is seeing a decline, though the index is currently down 1%.
The Commonwealth Bank of Australia (ASX: CBA) share price is up 1% after the big four bank reported its quarterly update. The BHP Group Ltd (ASX: BHP) share price is up 0.3% as well.
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Why are ASX tech shares hurting so much?
Sometimes, the ASX tech sector is influenced by what happens to international tech shares during the US trading session.
Overnight, the Nasdaq 100 Index (NASDAQ: NDX), which is made up of many of the world's largest tech names, dropped by 3%. The Apple Inc (NASDAQ: AAPL) share price fell 5.2% and the Microsoft Corporation (NASDAQ: MSFT) share price dropped 3.3%. The Meta Platforms Inc (NASDAQ: FB) share price declined 4.5% and the Amazon.com Inc (NASDAQ: AMZN) share price dipped by 3.2%. The Tesla Inc (NASDAQ: TSLA) share price sank 8.25%.
But there's another question – why did those shares fall so much?
There has been a lot of market focus on how strong inflation is at the moment. The latest US inflation data was just released and the 12-month percentage change for the consumer price index was 8.3%.
This wasn't quite as strong as the 40-year high of 8.5% registered in March but it remains elevated. Seasonally adjusted, there was a month-on-month increase of 0.3%.
According to Bloomberg, the core CPI was higher than all estimates in a Bloomberg survey of economists. The news outlet reported that investors are expecting ongoing strong moves by the US Federal Reserve to try to control inflation. There are more expectations for four straight 50-basis-point increases.
Bloomberg reported that Robert Frick, corporate economist at Navy Federal Credit Union, said: "The peak of inflation may be behind us, but today's CPI report points to a long, slow descent or maybe even a plateau around 8%."
Why interest rates are important for asset valuations
Interest rates are seen as an important influencer on asset prices, including ASX tech shares.
Warren Buffett once said:
The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature … its intrinsic valuation is 100% sensitive to interest rates.
