Tech stocks are in their worst two-week period since the start of the pandemic

Pedestrians pass the New York Stock Exchange.

Michael Nagle | Bloomberg | Getty Images

What started as a third-quarter bounce has turned into a flop for tech investors.

The Nasdaq Composite fell 5.1% this week after falling 5.5% last week. This is the tech index’s worst two-week stretch since it fell more than 20% in March 2020 at the start of the Covid-19 pandemic in the US.

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With the third quarter due to end next week, the Nasdaq is poised for a third straight quarter of losses if it can’t erase the current 1.5% decline over the last five trading days of the period.

Investors have been selling tech stocks since the end of 2021, betting that rising inflation and higher interest rates will have a bigger impact on the companies that rose the most during the boom. The Nasdaq is now just above two-year lows set in June.

Markets were weighed down by continued interest rate hikes by the Federal Reserve, which raised benchmark interest rates by another three-quarters of a percentage point on Wednesday and showed it will continue to rise well above current levels as it tries to lower inflation from its highest level in a year. In the early 1980s. The central bank raised its federal funds rate to a range of 3-3.25%, the highest since early 2008, after a third consecutive 0.75 percentage point move.

While rising interest rates have pushed the 10-year Treasury yield to an 11-year high, the dollar has strengthened. This makes U.S. products more expensive in other countries, hurting technology companies with large exports.

“It’s a one-two punch for tech,” Jack Ablin, chief investment officer at Cresset Capital, said on CNBC’s “TechCheck” on Friday. “A strong dollar doesn’t help tech. A high 10-year Treasury yield doesn’t help tech.”

Watch CNBC's full interview with Cresset Capital's Jack Ablin

Among the megacaps, Amazon had the worst week, falling close to 8%. Google parent Alphabet and Facebook parent Meta each fell about 4%. All three companies are in the midst of spending cuts or hiring freezes as they deal with a combination of weakening consumer demand, tepid advertising spending and inflationary pressures on wages and products.

As CNBC reported Friday, Alphabet CEO Sundar Pichai faced heated questions from employees at a full board meeting this week. Employees expressed concern about the cost cuts and Pichai’s recent comments about the need to increase productivity by 20%.

Tech earnings season is about a month away and growth expectations are muted. Alphabet is expected to report single-digit revenue growth after more than 40% growth a year earlier, while Meta is eyeing a second straight quarter of falling sales. Apple’s growth should be just over 6%. Expectations for Amazon and Microsoft are higher, at around 10% and 16% respectively.

The past week was particularly tough for some companies in the sharing economy. Airbnb, Uber, Lyft and DoorDash all fell 12-14%. In the cloud software market, which soared in recent years before crashing in 2022, some of the steepest decliners were GitLab (-16%), Bill.com (-15%), Asana (-14%) and Confluent (- -13%) .

Shares of the sharing economy this week

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Cloud giant Salesforce held its annual Dreamforce conference in San Francisco this week. During the financial metrics portion of the conference, the company announced a new long-term profitability goal that showed its determination to operate more efficiently.

Salesforce is targeting an adjusted operating profit of 25%, including future acquisitions, said CFO Amy Weaver. That’s higher than the 20% goal Salesforce announced a year ago for fiscal 2023. The company is trying to reduce sales and marketing as a percentage of revenue, in part through greater self-service efforts and improved salesperson productivity.

Salesforce shares are down 3% for the week and 42% for the year.

“There are so many things going on in the market,” co-CEO Marc Benioff told CNBC’s Jim Cramer in an interview at Dreamforce. “Between currencies and a recession or a pandemic. All those things that have a lot of power for you.”

WATCH: Jim Cramer interview with Marc Benioff at Dreamforce

Watch Jim Cramer's full interview with Salesforce co-CEO Marc Benioff