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What Caused the Drop in Technology Stocks? 



Is the market attempting to throw out the baby with the bathwater as recently as yesterday?


What happened was as follows


On Thursday, the stock market suffered a significant decline, with technology and growth stocks bearing the brunt of the decline. In the face of rising interest rates, a sluggish economy, and the consequences of the Federal Reserve's decision to end its quantitative easing program, investors expressed concern.


Among the worst-hit stocks were Zoom Video Communications (ZM -7.47 percent), DocuSign (DOCU -8.56 percent), and Okta (OKTA -7.75 percent). All three of these companies are major enterprise software-as-a-service (SaaS) companies that saw their stock prices plummet precipitously in today's trading. Zoom shares fell as much as 8.9 percent, Docusign shares fell as much as 10.6 percent, and Okta shares fell as much as 8.8 percent in the same period. Stocks in these companies finished the day with losses ranging from 7.5% to 8.6% and 7.8 percent, respectively. While this may be difficult to accept, it is beginning to appear as a buying opportunity for companies such as this one in the near future.


So what


Following a rate hike of exactly that magnitude to 0.75 percent to 1 percent for short-term Treasury bonds, Federal Reserve Chairman Jerome Powell stated yesterday that the Fed will not consider rate hikes greater than 50 basis points this year.


In response, interest rates on everything from mortgages to corporate bonds have increased, and when combined with the prospect of a negative gross domestic product in the first quarter of 2022, there is concern that the United States may be in for a difficult economic year in the years to follow.


In this environment, riskier assets, such as growth and technology stocks, are frequently sold by investors, and that is exactly what is happening right now in this market.


What should be the next step?


One of the most important things to understand about the current market is that everything is down, which means that good stocks are being thrown out with the bad. These critical business tools — such as Zoom, DocuSign, and Okta, to name a few examples — generate positive free cash flow and have high gross margins. In a downturn, this is a favorable position for investors to be in, as these are likely to be among the market's most stable corporations.


However, while operations continue to be strong, it is difficult to predict when these stocks, or the market as a whole, will reach their bottoms. Investors have been aware of reports of rising interest rates and inflation for months, but they appear to be selling on both the rumor and the news at the same time.


Despite the fact that it may appear difficult at the moment, these are excellent acquisition opportunities for long-term companies. When it comes to video calls, Zoom is a household name, DocuSign is a critical tool for businesses around the world, and Okta is a household name when it comes to digital security. For long-term investors, falling stock prices represent an opportunity to acquire excellent companies at a discount to their recent highs, according to my thinking.


Having said that, it is possible that the stock market has not reached its bottom. The year ahead could be difficult for investors if the United States economy does indeed enter a recession and interest rates rise sharply.

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