Surging bond yields have triggered hedge funds to sell growth-focused technology shares at a speed not seen in the past decade.
The hedge fund community dumped tech stocks in the four sessions between Dec. 30 and Tuesday as interest rates spiked. The four-session tech unloading marked the biggest sale in dollar terms in more than 10 years, reaching a record since Goldman Sachs’ prime brokerage started tracking the data.
Tech stocks are seen as sensitive to rising yields because increased debt costs can hinder their growth and can make their future cash flows appear less valuable. The tech-heavy Nasdaq Composite has sold off more than 3% this week, underperforming the S&P 500, which dipped 1% during the same period.
The rate spike in the new year resumed Thursday, with investors assessing the Federal Reserve’s faster-than-expected policy tightening. The yield on the benchmark 10-year Treasury note hit a high of 1.75% during the session, rising for a fourth straight day. The benchmark rate ended 2021 at 1.51%.
Yields jumped after the Fed issued on Wednesday minutes from its last meeting, which showed the central bank could become even more aggressive than expected about raising interest rates and tightening policy.
Goldman noted that hedge funds’ selling of tech stocks is driven almost entirely by long sales, in contrast to mainly short sales seen in the last two months of 2021. The selling was driven by software and semiconductor stocks, the Wall Street firm said.
Many Big Tech names have been under pressure. Shares of Netflix have fallen more than 8% this week. Microsoft has dropped 6% in the new year, while Alphabet fell 4%.