S&P/ASX 200 Index (ASX: XJO) tech shares are taking a beating today.
The broader market is facing a sharp sell-off as well, with the ASX 200 down 2.2% in early afternoon trade.
But the S&P/ASX All Technology Index (ASX: XTX) – which also contains some smaller tech stocks outside of the ASX 200 – is down a much steeper 4%.
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ASX 200 tech shares in the red
Looking at some of the bigger companies in the sector, shares in global logistics software provider WiseTech Global Ltd (ASX: WTC) are down 3.7%, trading for $56.95 per share.
Cloud-based accounting software provider Xero Ltd (ASX: XRO) is under selling pressure as well, with the Xero share price down 5.1% to $83.50 per share.
Then there's ASX 200 tech share NextDC Ltd (ASX: NXT).
The data centre developer and operator released some solid full-year results this morning. That included an FY22 statutory net profit after tax (NPAT) of $9.1 million, compared to the $23.6 million loss the company posted in FY21.
But those results have been unable to lift the company above the sea of red in the tech sector today, with the NextDC share price down 8.3%.
Why are investors selling today?
ASX 200 tech shares are under particularly heavy selling pressure today following a big sell-off on the NASDAQ on Friday, with the tech-heavy US index closing the day 3.9% lower.
The Aussie market is reacting to the same forces that drove down US stocks. Namely the decidedly hawkish speech delivered by US Federal Reserve chair Jerome Powell. Powell spoke at the Jackson Hole central banking summit in Wyoming on Friday morning (overnight Aussie time).
"Restoring price stability will likely require maintaining a restrictive policy stance for some time," Powell told the gathered delegates. "The historical record cautions strongly against prematurely loosening policy."
Powell noted that a period of higher interest rates would, over time, bring down inflation. But he admitted higher rates "will also bring some pain to households and businesses".
Today's market action looks to be a sign of that pain already hitting businesses.
Commenting on Powell's speech, Cliff Hodge, chief investment officer at Cornerstone Wealth, said (courtesy of Bloomberg):
Powell can't come right out and say that the Fed is fine walking us right into recession in order to crush inflation, but that is what this messaging unequivocally implies. What does this mean for markets? Drastically reduces the chance of a soft landing and the bull case for new highs this year.
ASX 200 tech shares are particularly susceptible to the pain of higher rates. That's because most tech shares are valued on future earnings growth potential. And as interest rates rise, the present cost of that future revenue growth increases.
