Tech stocks post worst two-week stretch since the start of the pandemic

Pedestrians pass the New York Stock Exchange.

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What started as a third-quarter rebound has turned into a fiasco for tech investors.

The Nasdaq Composite is down 5.1% this week after losing 5.5% the previous week. That marked the worst two-week stretch for the tech-heavy index since falling more than 20% in March 2020 at the start of the COVID-19 pandemic in the US.

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With the third quarter coming to an end next week, the Nasdaq is poised to post losses for the third straight quarter unless it can erase what is now down 1.5% over the last five trading days of the period.

Investors have been dumping tech stocks since late 2021, betting that rising inflation and higher interest rates will have a major impact on companies that have rallied the most during boom times. The Nasdaq now sits slightly above its two-year low in June.

Markets were hit by further rate hikes by the Fed, which on Wednesday increased its benchmark interest rate by three-quarters of a percentage point and indicated it will continue to rise well above current levels as it tries to bring inflation down from its highest level since the early 1980s. The central bank raised its federal funds rate to a range of 3%-3.25%, the highest since early 2008, following a third straight 0.75 percentage point move.

Meanwhile, as rising interest rates have pushed 10-year Treasury yields to their highest in 11 years, the dollar has strengthened. That makes US products more expensive in other countries, to the detriment of tech companies that export a lot.

“This is a one-two punch to technology,” Jack Ablin, chief investment officer at Cresset Capital, told CNBC’s “TechCheck” on Friday. “A strong dollar doesn’t help technology. High 10-year Treasury yields don’t help technology.”

Watch the full CNBC interview with Jack Ablin of Cresset Capital

Among the mega-cap group of companies, Amazon had the worst week, dropping nearly 8%. Alphabet’s Google Parent and Facebook’s Parent Meta are down about 4% each. All three companies are in the midst of cost-cutting or hiring freezes, as they factor in some combination of weak consumer demand, tepid advertising spending and inflationary pressures on wages and products.

As CNBC reported on Friday, Alphabet CEO Sundar Pichai faced heated questions from employees at this week’s all-hands meeting. Staff expressed concern about cost cutting and Pichai’s recent comments on the need to increase productivity by 20%.

The tech earnings season is about a month away, and growth expectations are muted. Alphabet is expected to report single-digit revenue expansion after growing more than 40% a year earlier, while Meta saw its second straight quarter of sales decline. Apple’s growth is expected to reach over 6%. Expectations for Amazon and Microsoft were higher, around 10% and 16%, respectively.

The past week has been particularly difficult for some companies in the sharing economy. Airbnb, Uber, Lyft, and DoorDash all saw declines of between 12% and 14%. In the cloud software market, which surged in recent years before crashing in 2022, some of the sharpest declines were in shares of GitLab (-16%), Bill.com (-15%), Asana (-14%) and Confluent ( -13%).

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Cloud giant Salesforce is holding its annual Dreamforce conference this week in San Francisco. During the portion of the conference targeted at financial metrics, the company announced new long-term profitability goals that demonstrate its determination to operate more efficiently.

Salesforce is targeting an adjusted operating margin of 25%, including future acquisitions, said Chief Financial Officer Amy Weaver. That’s up from Salesforce’s 20% target announced a year ago for fiscal year 2023. The company is seeking to squeeze sales and marketing as a percentage of revenue, partly through self-serving efforts and through increasing sales force productivity.

Salesforce shares are down 3% for the week and down 42% for the year.

“There’s so much going on in the market,” co-CEO Marc Benioff told CNBC’s Jim Cramer in an interview on Dreamforce. “Between a currency and a recession or a pandemic. All of these things are like you’re navigating multiple forces.”

WATCH: Jim Cramer Interview with Marc Benioff at Dreamforce

Watch Jim Cramer's full interview with Salesforce co-CEO Marc Benioff