have laid off tens of thousands of employees this quarter in a bid to cut costs ahead of an expected recessionary slowdown.
But there's been little sign of pain spreading beyond that sector, with the S&P 500 climbing 4.7% year-to-date. Around one-quarter of the companies listed on the index are set to report their fourth-quarter earnings this week."I do think there's something very different going on in the tech area than the broader economy, so if I were a tech CEO, I probably would say that I think this looks recessionary," he said.
"They over-hired, there was a huge pull-forward of activity during the pandemic and that's left a dearth of demand in its aftermath." Many of the companies rapidly expanded during the post-pandemic era of low interest rates, while cheap borrowing costs also tend to buoy tech stocks by boosting the future cash flows that make up a core part of their overall valuation.
But the Federal Reserve hiked interest rates from near-zero to around 4.5% in 2022 to clamp down on inflation, and that's now forcing big tech names to make major cutbacks."Their margins are getting squeezed very aggressively much more than other sectors, it's the only area in the S&P 500 that's expected to see margin contraction in 2023," he added.Read more:
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