ASX 200 tech stocks will be hit on Monday. this is why

S&P/ASX 200 Index (ASX:XJO) Tech stocks are taking a beating today.

The broader market is also facing a strong sell-off, with the ASX 200 down 2.2% in afternoon trading.

But S&P/ASX All Technology Index (ASX:XTX), which also contains some smaller tech stocks outside the ASX 200, is down a much higher 4%.

ASX 200 tech stocks in the red

Looking at some of the biggest companies in the sector, shares in the global logistics software provider WiseTech Global Ltd (ASX:WTC) are down 3.7%, trading at $56.95 per share.

Cloud based accounting software provider Xero Ltda. (ASX:XRO) is also under selling pressure, with Xero’s share price down 5.1% to $83.50 a share.

Then there’s the ASX 200 tech share NextDC Ltd (ASX: NXT).

The data center developer and operator posted some strong results for the full year this morning. That included a FY22 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 failed to lift the company out of the red sea in the tech sector today, with NextDC’s share price down 8.3%.

Why are investors selling today?

ASX 200 tech stocks are under particularly strong selling pressure today after a big sell-off on the NASDAQ on Friday, with the tech-heavy US index closing the day down 3.9%.

The Australian market is reacting to the same forces that sent US stocks down. Namely, the decidedly aggressive speech delivered by US Federal Reserve Chairman Jerome Powell. Powell was speaking at the Jackson Hole Central Banking Summit in Wyoming on Friday morning (Australian evening time).

“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell told the assembled delegates. “The historical record strongly cautions against premature easing of policy.”

Powell pointed out that a period of higher interest rates would, over time, reduce inflation. But he admitted that higher rates “will also bring some pain to households and businesses.”

Today’s market action seems to be a sign that pain is already hitting businesses.

Commenting on Powell’s speech, Cornerstone Wealth Chief Investment Officer Cliff Hodge said (courtesy of Bloomberg):

Powell can’t directly say that the Fed is okay taking us straight into recession to squash inflation, but that is what this message unequivocally implies. What does this mean for the markets? Drastically reduces the chance of a soft landing and the bullish case for new highs this year.

ASX 200 tech stocks are particularly susceptible to the pain of higher rates. This is because most technology stocks are valued based on the potential for future earnings growth. And as interest rates rise, the current cost of that future income growth rises.