Technology stocks down 30% year to date

Yahoo Finance Live anchors discuss the decline in tech sector valuations as consumer discretionary spending slows.

Video Transcript

[AUDIO LOGO]

BRIAN SOZZI: All right, here are three things you need to know right now. Continuing to discuss the brutal quarter all around. Let's zoom in on the tech sector.

Down nearly 5% in the past few months. And now, down 30% on the year. Brad, this has been a-- really a complete unwind of that big tech cap-- or big cap tech trade from 2021 here.

And sure, we've seen tech companies come out here and warn on earnings. We've seen firings pick up across the board. You got Meta out here now freezing their hiring practices. Who would have thought that would happen to Meta at any point? But it is happening now.

But really this move really reflects rising interest rates and all the leveraged bets on all these big cap tech names, all of these really hot plat-- tickers here on the Yahoo! Finance platform really getting reset, from a valuation perspective.

BRAD SMITH: This is going to be the next major test for tech in an environment where they're going to have to do so much demand generation and demand preservation. And what I mean by that is, when you think about a company in Apple, that we've been keeping close tabs on even over the course of this week. And some of the dampened demand, at least in some of the lower tier iPhones that they're anticipating, which has actually caused them to really take a look across production and cut down some of those figures and what their anticipations are there.

Apple, on the consumer side, you've got that demand situation. And so the demand preservation is something that we have to watch, especially if you've seen more people that are looking like they're gonna opt towards that higher-end phone. It's not just a question of how much they're willing to spend, because they're not just going out there and buying the phone right now, as we've talked about over the course of this week, it's a lot of the carrier contracts that they enter into. And so stretching that out over period of time has a larger kind of super cycle annexation or a larger hit on that.

But then you also think about demand generation. And even within an advertising sector, where we think about Meta or we think about Google, and the digital ad duopoly that they have been able to maintain. Or even Amazon and Apple, and the investments that they're making there, too. And Netflix.

This is gonna be an era where so many companies are pulling back on their marketing spend. And so with that, that's where you're seeing some of the rattle or the fracture, at least, within some of the expected ad revenues that companies in Microsoft, that Alphabet, that Meta would be able to recognize. And that's gonna be critical to even track going into this final quarter, where you know that there's going to be advertising spend that comes through the midterm elections, advertising spend that goes into the holiday season. All of that is extremely critical right now. And there's not clear answers at this point in time.

BRIAN SOZZI: No, and you're right. And that's the biggest problem because you do not have a line of sight on when the news might get better for cap-- big cap tech. You're still going to have rising interest rates in the fourth quarter.

You're gonna see probably more results, like out of Micron-- we'll talk more about that later-- where they're highlighting worsening demand. You're gonna have more big cap tech companies take a page out of Nike's earnings and warn about the impact of currency. All this is coming down the pike. And none of it looks like it's priced in.