The S&P 500 Is Driven By 5 Tech Stocks, What Does This Mean For Investors In 2022?

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Recently, the S&P 500 has been driven by 5 tech stocks: Microsoft MSFT, Nvidia NVDA, Apple AAPL, Alphabet GOOGL, and Tesla TSLA. Since they’re responsible for around one-third of the S&P 500 gains, one thing has been on the minds of investors everywhere: What if tech companies head into correction territory?

Even though Microsoft's report revealed sales are up, Nvidia jumped 125%, Apple reached another historic market cap, Alphabet beat the S&P 100 by nearly double and Tesla posted a record $5.5 billion revenue.

Investors who are counting on the tech bull rally recently suffered a setback with the recent record stock market sell-off. The Dow Jones lost nearly 1,400 points, and S&P fell 5.1% in one week. Tech companies, from Netflix to Zoom, were hit the hardest.

Even cryptocurrency isn't immune. Cryptocurrency enthusiasts were dismayed when Bitcoin dropped an estimated 50% from its high. 

The question many are asking is - will the stock market drop further? It’s possible, due to the coming interest rate hikes. 

The last time the S&P 500 dropped 50% or more was when the financial crisis happened, and interest rates were at a high of 5%. 

Now, Goldman Sachs predicts The Fed is preparing to hike interest rates 4 times due to out-of-control inflation rates (the highest in 40 years). 

Jerome Powell, The Feds Chairman, confirmed this when he said “if we have to raise interest more over time, we will.” 

The hike in interest rates can cause the market to fluctuate even further.

As chief economist at Moody Analyst, Mark Zandi explained: “The market is significantly overvalued, but when rates rise, valuations become a real issue.”

And Morgan Stanley CEO Michael Wilson warns the S&P 500 could plunge another 10%. He said, “it’s too early to be bullish.” 

What Will the Biggest Tech Drop in a Decades Mean For Investors in 2022?

The heavy sell-off was sparked largely by The Fed’s announcement that they will reverse stimulus policies and increase interest rates in order to combat inflation rates.

This could be troubling news to investors who are thinking about the stock market, largely propelled by tech stocks.

Fidelity reported, “history shows that stocks of companies in the technology sector have tended to struggle when inflation has risen.” And recently, reality has been showing its true colors.

Many popular tech stocks, such as Zoom, DocuSign, Alibaba, Snap, and HubSpot dropped 30-60% from their all-time high.

The company throttled by investors as starting the next entertainment revolution, Netflix, has dropped 91%, from approximately $690 to $359.

The biggest tech headliner of the pandemic, Zoom, has dropped from its 2020 high of $559 to $140 now, which is an approximate 298% drop.

It’s very possible that this is just the first sign of investors' pessimism for the stock market. As The Fed continues to remove stimulus from the market and plans to have its first interest rate hike in March, investors should consider other options.

An Alternative Investment For High Inflation?

Most investors never consider alternative assets, but 73% of ultra-high net worth Americans, surveyed by UBS, consider buying this particular alternative asset to diversify their portfolio. Recently, The Rothschild sold it for $197 million. Oprah Winfrey grossed $62 million. And Jeff Bezos sold Amazon stocks and purchased $70 million of them. They are all getting into art, an alternate asset class, for some reasons:

Blue-chip artworks have appreciated 23.2% on average when inflation is at least 3%? It has outpaced the S&P 500 by 164% from 1995 to 2021.” And now, investors have the opportunity to invest in this overlooked alternate asset alongside the ultra-wealthy with Masterworks. There are more than 300,000 members on the Masterworks art investment platform; signup is required for investors.

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