Jan 20, 2022 - Economy & Business

Nasdaq enters correction as tech stocks drop

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Tech stocks are bearing the brunt of the current sell-off — and the tech-heavy Nasdaq composite index officially slipped into a correction after another decline on Wednesday.

Why it matters: A correction is a term of art Wall Street applies to a sell-off that pushes prices down 10% from a recent high. It’s a shorthand way of describing a market drop that’s more serious than your run-of-the-mill dip.

The big picture: The Nasdaq topped out in November, not long after the Fed began making noise about shifting its attention away from addressing the pandemic's job losses — and toward fighting inflation.

Be smart: Tech stocks are considered more sensitive to rising interest rates — something the inflation-focused Fed is widely expected to deliver.

  • That stems from the fact that they tend to have high price-to-earnings ratios and typically pay little in the way of dividends.

The bottom line: As tech has become a bigger part of the overall stock market in recent years, rising rates have become a larger threat to broad market benchmarks like the S&P 500. Buckle up.

Go deeper