Actions of Amazon (AMZN -5.64%), Apple (AAPL -3.55%)Y Metaplatforms (GOAL -6.33%) they all fell on Monday, and the main stock indices also fell.
Investors worry that rising inflation, and the Federal Reserve’s response to it, could drag the economy into a recession. They sold shares in response to those fears, pushing the tech industry Nasdaq Composite it was down 3.7% as of 12:25 p.m.
Investors are still processing last week’s inflation report, which showed that even after the Federal Reserve made multiple increases in the fed funds rate earlier this year, in May, the consumer price index (CPI) rose year over year at its highest rate in 41 years. .
The CPI rose 8.6% in May, with fuel oil prices rising more than 100% and housing costs rising at their fastest annual pace in more than 30 years.
The fact that inflation remains stubbornly high despite the Fed’s efforts so far means high inflation could last longer than many investors and experts previously expected. To bring it down again, the Federal Reserve is committed to more interest rate hikes this year, including one later this week.
So why is this causing Amazon, Apple and Meta stock prices to drop? Because rising interest rates will eventually slow down the economy, and investors are worried the Fed could overcorrect and trigger a recession.
But any kind of economic slowdown, even if it’s not an official recession, would likely cause many tech companies to grow at a much slower rate than they are now. Furthermore, the future profits of Amazon, Apple and Meta will be worth less than they would have been if inflation were lower.
Also, some companies have already started shedding jobs and investors fear the trend could continue. For example, a recent email Tesla CEO Elon Musk sent employees that the electric vehicle company would cut 10% of its salaried staff and stock trading platform. Robin Hood and online car buying company caravan both have announced layoffs.
Persistently high inflation and a possible economic slowdown would affect Amazon, Apple and Meta in different ways. If consumers end up significantly cutting back on spending on goods, that would have a direct impact on Apple’s sales and Amazon’s e-commerce business.
Additionally, ongoing supply chain issues, as well as rising labor and shipping costs, are putting pressure on Amazon and Apple’s bottom line. As for Meta, a slowing economy would likely translate to less spending on advertising, the tech company’s main source of revenue.
With so much uncertainty in the economy right now, it’s no wonder these tech giants are seeing their share prices drop. But while these concerns about the US economy are not unfounded, investors should remember that buying stocks in large companies and holding them for the long term (five years or more) remains one of the best strategies for building wealth.