S&P/ASX 200 Index (ASX: XJO) tech shares are broadly showing some resilient performance today despite the overnight turmoil in US markets.
In morning trade on Friday, the ASX 200 is down 1.0%.
Here's how these big-name companies in the Aussie tech space are performing at this same time:
On a broader level, the S&P/ASX All Technology Index (ASX: XTX) – which also contains some smaller companies outside of ASX 200 tech shares – is down 0.8%.
Although outpacing the broader market losses, Aussie tech stocks are catching headwinds today from the rather rough day in US markets overnight.
Here's what's happening.
While not immune, ASX 200 tech shares are performing better than I'd expected today following the big retrace in US stock markets overnight.
By the time the smoke cleared, the S&P 500 Index (SP: .INX) was down 1.9%, while the tech-laden Nasdaq Composite Index (NASDAQ: .IXIC) closed the day down a sharp 2.8%.
Among some of the biggest names in the US tech sector, Apple Inc (NASDAQ: AAPL) shares closed down 1.8%, Tesla Inc (NASDAQ: TSLA) shares closed down 3.0%, and Microsoft Corp (NASDAQ: MSFT) ended the day down 6.1%.
It appears investors in the world's top economy were spooked by the same market bugbears that have previously thrown up headwinds for ASX 200 tech shares. Namely inflation and interest rates.
Tech stocks are more sensitive to higher rates. That's because most of these companies are growth-oriented and priced with higher future earnings in mind. And higher interest rates drive up the present cost of investing in those future earnings.
As for what caused selling action in the Nasdaq, yesterday's data from the US Bureau of Economic Analysis showed that underlying – or core – US inflation increased by 0.3% in September and 2.7% year on year.
Core inflation, which, like with the RBA, is the US Federal Reserve's preferred go-to measure for inflation, takes out volatile items like food and energy. And with core inflation running above the Fed's 2.0% target, markets look to have pared back their expectations on the size and pace of future rate cuts from the world's most influential central bank, adding some pressure to ASX 200 tech shares today.
Now, analysts and traders remain relatively certain that the Fed will deliver another 0.25% interest rate cut next week, on 7 November. But the odds of seeing another jumbo-sized 0.50% cut like the one delivered in September are fading.
Adding weight to the case for additional Fed rate cuts and offering some support for US tech stocks and ASX 200 tech shares alike, consumer spending in the US picked up in September amid ongoing wages growth, while the household savings rate fell markedly.
Commenting on the outlook for further Fed easing, Bloomberg economists Stuart Paul and Estelle Ou said:
The decline in saving helped prop up spending throughout the third quarter. With the Fed's attention rotating more toward the full-employment aspect of its dual mandate, we think the steady annual core inflation measure won't sway the Fed from its rate-cutting path.
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