Tech stocks surge despite Fed rate hike as GameStop (GME:NYSE) plummets on weak earnings and guidance

High multiple growth stocks are flipping the script with a strong rebound despite the Federal Reserve’s interest rate hike and uncertainty from the Ukraine war. Shares of Block (SQ:NYSE) soared by 10.9% on Thursday, while Roblox (RBLX:NYSE) spiked by 11.6%. Other high multiple stocks such as Crowdstrike (CRWD:NASDAQ), Zoom (ZM:NASDAQ), and Peloton (PTON:NASDAQ) rose by 7.6%, 4.1%, and 6% respectively.

Technology stocks have endured a heavy period of selling so far in 2022 as investors rotated away from high-growth and richly valued shares in anticipation of higher interest rates and tighter financial conditions from the Federal Reserve. The Nasdaq sank to close in a bear market on Monday, ending more than 20% below its recent record high from Nov. 19.

However, after a volatile start to the year, many technology stocks have become markedly cheaper. Investors are starting to believe a rebound is imminent given the bullish price action on tech stocks in the last week. Roblox is up by 25% for the week, while zoom has rebounded by over 15% since tuesday. Shares of Meta Platforms (FB:NASDAQ) have rallied by over 13% since Tuesday. This is against the backdrop of the Fed increasing interest rate.

Going by textbook playout, basic economics suggests that a hike in interest rates would be bad for stocks, especially high multiple growth stocks whose valuations are based on future earnings. The majority of the growth stocks are tech-related which explains why the sector has been going through a barrage of sell-off in anticipation of a hike in interest rate.

However, the cheap valuation of tech stocks looks too good an opportunity to pass – interest rate hike or not. As such, investors are taking advantage of their cheap prices to get onboard. The bullish price action also suggests that investors are getting comfortable with the Fed rate hikes which have been priced into stocks since last November when Fed Chair, Jerome Powell retired the word ‘transitory’ from his characterization of the rising inflation.

Albeit it is yet to be determined if this rebound is just a little ease off the pedal before a deeper plunge. At least 3 more rate hikes are expected this year. Also with the treasury yields finally breaking the 2% threshold, investors may prioritize safety of funds over quick gains. There are also supply chain issues that have been exacerbated by rising covid cases in China and Hong Kong, plus the recent earthquake in Japan

Also, not all tech stocks are immersed in growth, as many also offer value. Stocks such as Nvidia (NVDA:NASDAQ), AMD (AMD:NASDAQ), and Apple (APPL:NASDAQ) offer investors value. These stocks may not be badly battered like Peloton and Zoom that are yet to post profit.

Meanwhile, shares of GameStop (GME:NYSE) plummeted by 8% in aftermarket trading on Thursday after the video game company reported losses for the holiday quarter. GameStop surprised Wall Street with a net loss of $147.5 million in the fourth quarter of 2021. GameStop topped expectations for revenue, with sales of $2.25 billion, up more than 6 percent over the fourth quarter of 2020.

Revenues also were greater than pre-pandemic Q4 2019. But while analysts had forecast earnings of more than 80 cents per share, the company reported a net loss of $1.94 per share, compared to income of $1.18 for the fourth quarter of 2020.

Gamestop said the loss was a downpayment on its future as it looked to strengthen relationships with gaming brands and open up new avenues for generating cash — including launching a new marketplace for nonfungible tokens, or NFTs, by the end of the second quarter

The retailer offered no guidance – a trend that has persisted since March 2020. The company’s executives also declined to take questions from analysts during company’s earnings calls which lasted for about 11 minutes, the longest since Matt Furlomg became CEO in June 2021.

As of Thursday’s close, GameStop shares are down about 41% so far this year. Shares rose about 1% on Thursday to close at $87.70. The company’s market value is nearly $7 billion.