By dint of printing money, the fear of inflation returns, interest rates rise and stocks fall sharply. This is what happened Thursday, February 25 on Wall Street: the Nasdaq index rich in technology stocks lost 3.5%, its worst session since October 2020, while the Dow Jones and the S&P 500 fell respectively 1.8% and 2.4%.
The panic started with the rise in long-term interest rates: the yield on ten-year US Treasury bills crossed the 1.55% mark, a record since the start of the Covid-19 pandemic. The gain is 0.20 points in two days and the level four times higher than the low of 0.38% reached in early September 2020.
Explanation: investors think that the stimulus plans, the zero rate policy of central banks and the progress of vaccination, will certainly restart the economy, but also lead to overheating and a resumption of inflation.
They therefore get rid of their bonds by selling them, believing that they do not earn enough. Logically, the rates go up – to agree to buy treasury bills, investors demand higher remuneration. The trigger for the movement was the decline in weekly unemployment benefit claims in the United States published Thursday morning – they are down from 111,000 to 730,000.
Wild fixes on tech stocks
The case created a contagion effect on the shares. In theory, these are worth the discounting of future profits. But with higher rates, those future profits, often distant in tech, are worth less. This is what led to a readjustment in the prices of technology stocks, which had peaked during the pandemic.
On Thursday, the corrections were wild, with titles heavily hit while they were very speculative and sometimes posted quarterly results less spectacular than expected. This is the case of the artificial intelligence firm Palantir (- 9%), the telemedicine company Teladoc (- 13%), the world leader in microprocessors for video games Nvidia (- 8%). And among the stars of the rating, Tesla fell by 8% and GAFA (Google, Amazon, Facebook, Apple) by more than 3%.
Businesses are also potentially hit by the cost of debt, which could rise – rates are so low that thousands of businesses dubbed “zombies” are set to go bankrupt or at least see their profits fall. The markets continue to be extravagant, with GameStop action continuing to soar on Wednesday and Thursday.
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