What happened
Shares of Amazon (AMZN 1.30%), Apple (AAPL 0.64%), and Meta Platforms (META 2.98%) were all tumbling Monday, and the major stock indices were sliding as well.
Investors are worried that rising inflation -- and the Federal Reserve's response to it -- could drag the economy into a recession. They sold shares in response to those fears, pushing the tech-heavy Nasdaq Composite down by 3.7% as of 12:25 p.m. ET At that point in the session, Amazon was off 5.4%, Apple had dropped 2.3%, and Meta was down 4.3%.
So what
Investors are still processing last week's inflation report, which showed that even after the Federal Reserve made multiple hikes to the federal funds rate earlier this year, in May, the Consumer Price Index (CPI) rose year over year at its highest rate in 41 years.
Image source: Getty Images.
The CPI rose 8.6% in May, with prices for fuel oil up more than 100% and shelter costs rising at their fastest annual pace in more than 30 years.
The fact that inflation remains stubbornly high despite the Fed's efforts thus far means that high inflation could be around for longer than many investors and experts had previously hoped. To get it back down, the Federal Reserve is committed to more interest rate hikes this year, including one later this week.
So why is this causing the share prices of Amazon, Apple, and Meta to tumble? Because rising interest rates will end up slowing down the economy, and investors are worried that the Fed could overcorrect and cause a recession.
But any type of economic slowdown, even if it's not an official recession, would likely see many technology companies growing at much slower paces than they are now. Further, the future earnings of Amazon, Apple, and Meta will be worth less than they would have been if inflation was lower.
Additionally, some companies have already begun cutting jobs, and investors worry the trend could persist. For example, a recent email Tesla CEO Elon Musk sent to employees said that the EV company would be cutting 10% of its salaried staff, and stock-trading platform Robinhood and online car-buying company Carvana have both announced layoffs.
Now what
Persistently high inflation and a potential economic slowdown would impact Amazon, Apple, and Meta in different ways. If consumers end up significantly cutting back on spending on goods, then that would have a direct impact on Apple's sales and Amazon's e-commerce business.
Additionally, ongoing supply chain issues, as well as rising labor and shipping costs, are putting pressure on the bottom lines of Amazon and Apple. As for Meta, a slowing economy would likely translate to less spending on advertising, the tech company's main source of revenue.
With so much uncertainty in the economy right now, it's no wonder these tech giants are seeing their share prices fall. But while these concerns about the U.S. economy aren't unfounded, investors should remember that buying stock in great companies and holding it for the long term -- five years or more -- is still one of the best wealth-building strategies.
