S&P/ASX 200 Index (ASX: XJO) tech shares are taking a beating today.
Not that it’s a great day for any of the sectors.
At the time of writing, the S&P/ASX All Technology Index (ASX: XTX) leading the charge lower, down 6.96%.
And some of the biggest names are taking some of the big falls.
The Xero Limited (ASX: XRO) share price, for example, is down 6.27% while shares in WiseTech Global Ltd (ASX: WTC) are down 8.82%. Meanwhile, ASX 200 tech share giant Block Inc (ASX: SQ2) has crashed 18.40%.
Why are ASX 200 tech shares falling hard today?
The finger of blame is again squarely pointing at hot running inflation and the subsequent interest rate increases investors can expect.
The latest data out of the US showed inflation in May pushed annual CPI figures up to 8.6%. This came after inflation had eased from 8.5% in March to 8.3% in April, stoking hopes that the world’s biggest economy may have hit peak inflation. Current numbers out of the US are the highest in 40 years.
With hopes of peak inflation waning, investors are now bracing for more aggressive interest rate hikes from the US Federal Reserve, and likely other central banks the world over. Higher rates put pressure on growth stocks, like ASX 200 tech shares, often priced with distant future earnings in mind.
The Fed meets this Wednesday (night time in Australia) to determine its next move. Analysts widely expect a 0.50% increase, with a growing number forecasting a 0.75% hike. That would be the biggest increase since 1994.
According to Evercore ISI’s Krishna Guha and Peter Williams (quoted by Bloomberg), “Once the Fed starts moving in 75s it would be hard to stop, and the combination of this and the Fed’s outcome-based approach to inflation feels like it could be a recipe for recession.”
Steven Englander, head of foreign exchange research at Standard Chartered Bank said investors should brace for the potential for even more aggressive tightening from the Fed:
The Fed’s trying to erase any perception that they’re behind the curve. Fifty was the big round number six months ago. Meanwhile, 75 is a very middling type of hike. So, the Fed might say: ‘Look, if we want to show commitment, let’s just do 100.’
How have Xero, Block and WiseTech been performing?
It’s been a difficult year for most ASX 200 tech shares. And Xero, WiseTech and Block are no exception.
As a benchmark, year-to-date the ASX 200 is down 11.25%.
Over that same period, the WiseTech share price has lost 39.31% and the Xero share price is down 45.04%.
Dual listed Block began trading on the ASX on 20 January, following its successful acquisition of Afterpay. Since then shares in the BNPL payment giant are down 49.33%.