Investing.com - Wall Street is increasingly anxious that the driving forces behind this year's tech-stock boom might be running out of fuel. This apprehension became apparent on Thursday when the Nasdaq 100, laden with technology stocks, experienced its most significant drop in five months. Disappointing earnings figures from industry giants Netflix Inc (NASDAQ:NFLX). and Tesla Inc (NASDAQ:TSLA) cast a shadow over future prospects for the sector.
Simultaneously, robust employment data amplified concerns that we may not see an end to the Federal Reserve's most vigorous monetary policy tightening in many years any time soon.
However, more substantial challenges lie ahead.
In the coming week, approximately 170 companies listed on the S&P 500 Index - accounting for about 40% of its market capitalization - are poised to release their results. These include influential tech players such as Microsoft Corporation (NASDAQ:MSFT), Meta Platforms Inc (NASDAQ:META), and Alphabet (NASDAQ:GOOGL) Inc Class C (NASDAQ:GOOG), Google's parent company.
Eric Diton, president and managing director at Wealth Alliance voiced investor concern stating that any additional hikes than what Wall Street anticipates could spell trouble for tech stocks requiring adjustment in valuations.
Interest rates significantly impact growth stocks as they determine the present values of future earnings. Despite this year being challenging due to these changes by Fed; resilience shown by profits led to an unexpected rally among tech shares.
Optimism driven partly by advancements made in artificial intelligence has further inflated valuations resulting in Nasdaq soaring by 42%. Even after experiencing its worst day recently; it still seems ready to conclude this week with only minor losses overall.
The contribution of major tech corporations towards the S&P 500 index cannot be overlooked given their large market shares which assigns them considerable weightage within benchmark calculations. The combined forward earning multiple for top five firms – Apple (NASDAQ:AAPL), Microsoft Amazon.com Inc (NASDAQ:AMZN)., Nvidia Corp., and Alphabet stand at a surprising high since March last year; almost double compared rest of the index according to Bloomberg Intelligence data compilation.
These high multiples also mirror expectations that cost-cutting efforts will lead to continuing improvement in big-tech earnings trend; BI forecasts suggest potential profit expansion up to 16% during Q2 specifically for these top five leading companies compared to broader equity contraction projected around 9%.
Other indicators seem promising too especially if easing producer-price inflation continues supporting profit margins says Gina Martin Adams chief equity strategist at BI who believes improving profits across other sectors might help sustain stock prices eventually.