As Technology Stocks Plunge Further, the Federal Reserve's Reputation in Handling Crises Is Put to the Test

The recent downturn in the U.S. technology sector has intensified, as investors prepare for ongoing volatility amid inflation concerns and evolving expectations for Federal Reserve policy, sparking widespread anxiety. Over the past two weeks, the Nasdaq Composite has dropped 4.4%, marking its poorest showing since April, while the S&P 500 declined by 3%. Both indexes saw a modest recovery after

. Experts highlight that the high valuations of the so-called "Magnificent Seven" stocks—such as Apple and Microsoft—are a significant factor, with many of these companies trading at price-to-earnings ratios .

Apple's postponement of its second-generation iPhone Air, which was initially planned for release in 2026, has further unsettled investors. Reports indicate that the company halted development due to disappointing sales of the current version, prompting Foxconn and Luxshare to stop production lines

. This decision highlights broader issues with consumer demand and adds to worries about inflated tech valuations. Meanwhile, Monday.com (NASDAQ:MNDY) saw its shares tumble 20% in premarket trading after providing cautious forecasts despite delivering strong third-quarter results, and $95.1 million in operating cash flow.

The current selloff is happening alongside mixed messages from the Federal Reserve. November's inflation figures revealed that core CPI climbed 3.3% year-over-year, which met forecasts but showed little progress toward the 2% objective . Although markets are still almost certain of a 25-basis-point rate cut at the December meeting, some economists are predicting fewer reductions in 2025. the importance of maintaining a "somewhat restrictive" stance, pointing out that inflation is still above the target and cautioning about possible renewed upward pressure in 2026.

Political factors are also contributing to the instability.

for discussions on affordability and mortgage rates. Treasury Secretary Scott Bessent noted that lower borrowing costs could help ease financial strain, but Trump's advocacy for deregulation and tariffs has sparked concerns about market stability and inflation .

Beyond the stock market, deeper risks are surfacing in U.S. dollar funding markets. Rising repo rates and the Federal Reserve's balance sheet reduction have widened the SOFR-IOER spread to its largest since 2020,

. European and Japanese banks, which depend heavily on dollar funding, could be destabilized if repo rates stay high.

While corrections in the tech sector and inflationary trends are grabbing attention, analysts warn that the real challenge will be the Fed's ability to steer a delicate global financial system. "

" wrote Hung Tran of the Atlantic Council. With mounting political pressure and stress in dollar markets, investors are preparing for a volatile period ahead.