Why are ASX 200 tech shares getting hit hardest today?

Investors are concerned the US Fed may move aggressively to stem the highest US inflation levels in 40 years.

| More on:
Kid with a brown paper bag on his head which has a sad face on it sits in front of an old style computer representing falling ASX 200 tech shares today.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • ASX 200 tech shares are tumbling today 
  • Investors are selling risk assets as the US Fed gets ready to announce its next interest rate decision on Wednesday 
  • US inflation data surprised to the upside on Friday spooking equity markets 

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%.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc., WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended Block, Inc., WiseTech Global, and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A woman looks internationally at a digital interface of the world.
Technology Shares

Better ASX tech buy: Xero or Altium?

Let's put these two WAAAX shares to the test.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Consumer Staples & Discretionary Shares

2 surprisingly ‘robust’ ASX shares to buy in current climate: expert

Real estate and consumer discretionary sectors might be the first to suffer as interest rates rise. But here are a…

Read more »

Two people shaking hands in the boardroom on a merger.
Technology Shares

Guess which ASX All Ords share just inked a new deal with Fortescue

Sadly, the deal hasn't been enough to save the ASX All Ordinaries share from the red.

Read more »

A woman shrugs and pulls awkward expression with her face.
Materials Shares

Is Novonix considered an ASX lithium share?

Can Novonix be considered an ASX lithium stock?

Read more »

One young boy jumps off a step ladder and is captured mid-air about to land on a seesaw where his friend is standing with a wide smile on his face looking at the camera and holding his thumbs up as though he is excited for the ride to come. Both young boys are wearing business suits.
Mergers & Acquisitions

Nearmap share price jumps 30% on takeover news

The Nearmap share price rallied 33% to $2.01 in early trade on Monday, but remains below the bid price.

Read more »

A group of five people dressed in black business suits scrabble in a flurry of banknotes that are whirling around them, some in the air, others on the ground as some of them bend to pick up the money.
Technology Shares

2 ASX tech shares about to go cash-flow positive

After massive interest rate rises, using your own cash to operate is so much better than borrowing to survive.

Read more »

Galan Lithium share price falling asx share price represented by a sad and flat battery
Technology Shares

Novonix share price tumbles 6% on Friday. What’s going on?

It's proving to be a rough day for this ASX 200 tech share.

Read more »

A mother and her young son are lying on the floor of their lounge sharing a tech device.
Technology Shares

Is the Megaport share price back on track after a broker upgrade?

A tech stock rally in the US and a broker upgrade helped Megaport shares to a 3% gain on Thursday.

Read more »