Whatever caused the tech selloff, and inflation angst looks to be the likeliest culprit, evidence has been gathering for weeks that traders were bracing for declines.
Short interest in the Nasdaq 100 exchange-traded fund, in free fall as recently as March, was surging before the index had its biggest plunge since March. Flows to the ETF were negative in April and would’ve been this month, too, if not for a jump on Friday. All told, about half a billion dollars has been drained from the QQQs this year.
As the Nasdaq 100 — trading at more than 5 times annual revenue — dropped more than 2.5%, volatility in tech stocks jumped by the most since early March. With inflation expectations leaping to the highest level since 2006, everything from the biggest megacap tech stocks to the frothiest small fry was slammed. Futures on the Nasdaq 100 slid as much as 1.4% in early Asian trading on Tuesday.
“Inflationary pressures are becoming harder to ignore,” said Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors. “Although the jury is still out on whether this is merely a temporary issue, the prospect of inflation is leading investors to seek out areas that are better insulated from the threat of rising prices.”