(Bloomberg) -- Technology stocks are headed for their worst December since the bursting of the dotcom bubble two decades ago as optimism about potential relief from Federal Reserve interest-rate hikes faded on signs of labor-market strength.
The Nasdaq 100 Index sank as much as 4% Thursday, the most since early October, after a report showed US jobless claims remained near historically low levels, underscoring that the Fed has plenty of reasons to keep tightening policy. Separate data showed a key inflation gauge was up slightly from the prior reading.
Add to that weak results from chipmaker Micron (NASDAQ:MU) Technologies Inc. and thin holiday trading, and the session turned into a brutal one for equity bulls, who are again fretting over the risk of a potential recession.
The tech benchmark, laden with companies like Apple Inc (NASDAQ:AAPL). and Microsoft Corp (NASDAQ:MSFT)., has dropped 10% this month, more than erasing a November rally fueled by hopes that cooling inflation would set the stage for even slower Fed hikes and potentially a pause next year.
The economic figures “were hotter than the market was hoping for, so now we have to contend with the notion the Fed will stay aggressive raising rates,” said Joe Gilbert, a portfolio manager for Integrity Asset Management. “This along with earnings reports from cyclical companies that suggest the forward outlook is weakening substantially, and a policy error by the Fed is becoming more likely everyday. This points to a risk-off market.”
The angst is rippling beyond the tech sector. The S&P 500 dropped 2.7% on Thursday and is down 7.5% this month. Tech stocks, however, have suffered the most this year amid soaring inflation as their valuations are more sensitive to higher interest rates. The Fed hiked rates last week for the seventh straight meeting.
Among the worst performers on the Nasdaq 100 this month are Tesla (NASDAQ:TSLA) Inc., whose shares have dropped more than 35% amid concerns about flagging demand for its electric vehicles and Elon Musk’s preoccupation with Twitter Inc (NYSE:TWTR). Chipmakers Marvell (NASDAQ:MRVL) Technology Inc. and Advanced Micro Devices (NASDAQ:AMD) Inc. have fallen about 20%.
This month’s selloff would have to get worse to exceed losses suffered in December 2002 when the benchmark dropped 12%. There may be some good news for bulls looking back at how things played out 20 years ago: The Nasdaq 100 had already bottomed in October 2002 after plunging 83% from a March 2000 peak.
The benchmark is still trading above its closing low for the year set on Nov. 3 and is now down by roughly a third in 2022.