Imminent Fed Fee Hike Dents Technology Shares

Technology stocks fell sharply on news that the Federal Reserve is likely to raise interest rates as soon as this week, raising concerns about the cost of borrowing for many companies.

The Federal Reserve is widely expected to hike its benchmark rate on Wednesday for the third time this year, in an effort to contain the rising prices of commodities and wages. This move, however, is causing consternation among technology investors, as the sector is often open to liquidity constraints and has tended to underperform when interest rates rise.

The major technology benchmarks—the Nasdaq 100, S&P 500 Information Technology Index and Dow Jones U.S. Technology Total Stock Market Index—all posted significant losses in the first trading session after news of the rate hike hit markets. Notably, the NASDAQ Composite, a broad measure of companies across various sectors, fell 2.6%.

The most affected stocks included chipmakers and semiconductors, as well as Apple, Microsoft, and Amazon. Facebook and Alphabet, the parent company of Google, also saw a decline in share price following the announcement.

The rate hike is likely to cause unease among borrowers, as they will now have to pay more to finance their operations. This, in turn, could cause businesses to slow their investments in new technologies and products, affecting the sector’s performance in the short-term.

Ultimately, while the rate hike could impact technology stocks in the near-term, the sector will likely continue to grow in the longer term as companies continually invest in research and development to develop new products. Technology companies have also proven themselves to be resilient in difficult economic times, as evidenced by their performances over the past decade.

Investors are advised to exercise caution and monitor the sector carefully as the rate hike could lead to more volatility in the coming weeks.

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