What happened
The share prices of some technology companies were tumbling fast today on no company-specific news, but rather on the latest jobs report, which showed that the number of new hires increased by far less than expected in March.
Normally, that type of data probably wouldn't have much of an effect on a tech company's share price, but this news comes as the tech sector has already cut about 130,000 jobs so far this year, amid growing fears that the U.S. economy is slowing down.
Against that backdrop, shares of the customer engagement platform Twilio (TWLO 1.79%) fell 8.4%, the content-delivery network company Fastly (FSLY 2.21%) plunged 8.6%, and the cybersecurity company Zscaler (ZS -0.36%) dropped 8.8% as of 11:15 a.m. ET on Wednesday.
Image source: Getty Images.
So what
The latest ADP payroll data showed that hiring in the private sector increased by just 145,000 in March, which was down from 261,000 jobs in February and below the estimate of 210,000 for the month. Some of the biggest segments of slowing job growth were the financial sector, professional and business services, and manufacturing.
The recent job cuts in the technology sector have already been somewhat of harbinger of a slowdown in U.S. hiring, and this latest data is yet another indicator of a decelerating economy.
ADP's chief economist, Nela Richardson, said in a press release: "Our March payroll data is one of several signals that the economy is slowing. Employers are pulling back from a year of strong hiring, and pay growth, after a three-month plateau, is inching down."
Twilio laid off 1,500 of its employees (about 17% of its workforce) in February after CEO Jeff Lawson said that the company had gotten "too big." And Zscaler recently announced that it's cutting 3% of its staff.
While Fastly hasn't announced any layoffs, all three companies are continuing to feel the pressure from a slowing economy. Rising interest rates are making it more expensive for companies to borrow money to expand. That's bad for high-growth companies that need to significantly invest to spur new growth. These worries have fueled something of an exodus from technology stocks over the past year.
Now what
Investors might be looking particularly closely at this latest jobs data because the Labor Department will release its non-farm payroll numbers on Friday. Any further indication that the U.S. economy is slowing down could put additional pressure on growth stocks like Twilio, Fastly, and Zscaler.
These companies are already feeling some of the effects of a slowdown, and additional economic pressure could curb their growth. Each of the three thrived when money was cheap, but they might have to readjust their growth strategies further amid a potential recession.
That doesn't mean that they won't be good long-term investments, but it does mean that as more economic data is released, shareholders of these tech stocks might want to prepare for more volatility.
