What happened
Shares of Dynatrace, Inc. (DT 1.06%), a software intelligence platform company, fell hard last month on no company-specific news. Instead, investors were likely reacting to a broader market sell-off that sent the S&P 500 tumbling nearly 9% and the tech-heavy Nasdaq Composite down 13%.
Dynatrace shareholders were seemingly in panic mode throughout April, pushing the stock down 18.6%, according to data provided by S&P Global Market Intelligence.
So what
Investors were in full-blown pessimistic mode last month as they processed news that the Federal Reserve was poised to raise the federal funds rate. When the Fed raises those rates, it typically causes the interest rates in other markets to go up -- and that has concerned investors.
Image source: Getty Images.
The Fed is trying to slow down inflation that's reached a 40-year high. In April, Fed Chairman Jerome Powell said that a 50 basis point rate hike was on the table. Some investors viewed this as an aggressive move and exited some of their stock positions -- especially in the high-growth tech sector -- on fears that rising rates will slow down the economy.
The rate hike did indeed happen at the beginning of this month, and the Fed has indicated that it will continue raising rates throughout this year, with potentially more 50 basis point hikes.
Now what
Dynatrace investors are reacting in a way that is similar to how many other tech investors are reacting right now. With the Federal Reserve seemingly ready to do what it takes to bring inflation back under control, it makes high-growth stocks less attractive.
That's because higher rates will likely lead to some sort of slowing of the economy. If and when that happens, growth stocks could have a hard time putting up the same sales figures they did in the recent past and potentially an even harder time increasing profits.
Dynatrace's stock benefited from the tech boom during the earlier days of the coronavirus pandemic but is now down 31% over the past 12 months.
Technology stocks -- including Dynatrace -- are likely to see more volatility in the short term as investors try to determine where the Fed is headed with future rate hikes and how the economy will react to them.
