What happened
The share prices of Shopify (SHOP -2.37%), Doximity (DOCS -2.73%), and Datadog (DDOG 0.50%) were all falling today, along with many other tech stocks, as investors expect the Federal Reserve to hike interest rates when it meets later this week.
Shopify was down 4.4%, Doximity had plummeted 12.8%, and Datadog had tumbled 6.8% as of 2:57 p.m. ET.
So what
The market has been especially volatile as of late as investors process a lot of news, but investors have had their eye on the Fed's upcoming interest rate hike for some time and their concerns appear to be manifesting by selling shares of growth stocks today.
Image source: Getty Images.
The Fed will hold a two-day meeting this week in which it's expected to announce a quarter-percentage-point interest rate increase.
When interest rates are higher the cost of borrowing increases. For high-growth companies like Shopify, Doximity, and Datadog this can mean that the cost of investing in new products or expanding its business could be more expensive. It also means that future cash the company generates will be worth less than it would be if interest rates were lower.
Investors are concerned that high-growth companies -- many of which are in the tech sector -- could experience a slowdown as interest rates rise.
Additionally, the Fed is expected to shed some light on its economic outlook and give a potential forecast for future rate hikes and inflation this week. As recently as a month ago the Federal Reserve's plan for helping to tamp down inflation -- which is at a 40-year high -- seemed to be clearer, but the war in Ukraine has clouded the outlook.
Investors are now left wondering how the Fed will handle rising inflation and economic uncertainty caused by the conflict in Europe.
If all of that weren't enough, the share prices of several big tech companies fell today after China said that it would impose new COVD-19 lockdown measures for millions of people. The new restrictions could make some supply chain disruptions even worse than they are now.
As investors fled tech stocks today the 10-year Treasury yield rose to 2.1% -- its highest level in nearly two years.
Now what
There's no getting around the fact that the past six months have been a trying time for investors. The S&P 500 is down nearly 7% since then and the tech-heavy Nasdaq Composite has fallen more than 16%. With so much uncertainty in these broad-based indexes, it's understandable that some investors are wondering what to do with their investments.
But while these losses sting in the short term, investors should keep in mind that exiting the market when things are going poorly is the best way to lock in your losses.
Instead of panic-selling, Shopify, Doximity, and Datadog investors should revisit their original investing thesis for these stocks. If nothing has fundamentally changed with these companies, then the best course of action is likely to hold onto your shares and wait out the volatility.
