- Tech sector bears brunt of sharp market sell off
- Crypto assets fall in tandem
- Have markets seen the bottom?
The wheels off, at least certainly for a lot of the quack investments, crypto shills and the rest of those who mistook a free-money, debt-fuelled momentum bubble for real hard cash. Wall Street sank the most in two years, Bitcoin briefly sank under $30k, MicroStrategy (MSTR) dived 25 per cent, Tesla (TSLA) was off 9 per cent, Coinbase (COIN) –20 per cent and ARKK declined almost 10 per cent amid a total rout of the tech sector. Safety in soup: Campbell Soup (CPB) is up almost 10 per cent in the last five sessions, handsome outperformance versus a market ‘in turmoil’. Deep correlation means stress in one pocket is creating stress everywhere... the only thing holding up right now is gold, which is proving remarkably resilient to the strong dollar and rising real yields... -10 per cent from its recent peak vs NDX -27 per cent and Bitcoin -57 per cent.
Yesterday was carnage, but was it capitulation? Stock markets in Europe and US futures are attempting to rally this morning but we still question whether the bottom is in... likely to be a short-covering rally for now as I feel we are not at max fear levels yet. Vix lower but have we top-ticked yet... need it to flatten a bit more. The Nasdaq Composite fell 4.3 per cent and the S&P 500 declined 3.2 per cent. Asian markets were broadly firmer with PBOC delivering some easing via comments on supporting the economy... lockdowns in China’s megacities remain though.
Losses were large across virtually all sectors yesterday and everything got swept along with the current – commodities sank too and there are plenty of babies being thrown out with the bath water in this environment. However, in this kind of bear market even if you see some really enticing valuations for beaten-down stocks, you should be prepared for them to fall further, especially if they’re in the tech/growth old momentum names. Breadth is horrendous - about 90 per cent of US stocks were lower, 1,400 new 52-week lows on the Nasdaq... but not the total flush-panic that we saw at the start of the pandemic. But portfolios are under extreme pressure. Bottom fishers are out in force... Tom Lee says FAANGs are trading at attractive levels.
MS: “We live in the most chaotic, hard-to predict macroeconomic times in decades. The ingredients for a global recession are on the table... Avoiding a recession is our base case, but markets will have to confront the rising probability of one regardless.”
ARKK and the disruptive growth thesis doesn’t hold water... the ARKK Innovation ETF (ARKK) was down another 10 per cent to $41. Latest filing shows Cathie has been selling Tesla from ARKK and buying GM for the ARKQ fund – the Autonomous Technology and Robotics ETF. Given how many times she has said OEMs are an investment risk due to EV disruption, this is kind of odd, to say the least. Meanwhile Tesla has halted production at its Shanghai site due to a shortage of parts.
Sticking with Elon Musk, Twitter (TWTR) shares fell but only in line with the rest of the market. Slipping 4 per cent to $48. Musk indicated he could walk away. Or was that just idle chit-chat? The lower Tesla stock goes the less appealing the deal will become. Meanwhile Hindenburg has come out with a short position on TWTR saying there is a material risk of the deal being repriced. “We believe that if Elon Musk’s bid for Twitter disappeared tomorrow, Twitter’s equity would fall by 50 per cent from current levels. Consequently, we see a significant risk that the deal gets repriced lower,” Hindenburg notes, adding that the Tesla boss can simply walk away if he chooses to, which means he can get better terms if he were to press for them. “Musk has incredible leverage to renegotiate should he choose to,” they write. You can read the full research piece here.
It was the worst day for global stocks since June 2020. The difference between then and today is the Fed no longer has the market’s back and there is not a few trillion in stimulus cheques incoming. And the Fed won’t blink unless there is a top in inflation - CPI data tomorrow will be watched carefully. Expectation is for +0.4 month-on-month, indicating that core is not slowing materially. Peak inflation and soft landing would be enough to rally the troops and for the generals of the market to press on and upwards. For now though we are in the kind of market where selling begets selling, rallies are sold into and everyone is hiding from the recession and inflation risk in cash. Gamma is negative so dealers are hedging selloffs by selling as the market drops, exacerbating the decline. There are some very clear correlations with the dotcom era now and we look to see who might emerge as the winners from all this... for there will be some.
Not everyone is panicking - reason enough to think the bottom is not in. JPM: “We stay pro-risk, with OWs in equities and commodities and UWs in bonds and cash. The past week’s sell-off appears overdone, and driven to a large extent by technical flows, fear, and poor market liquidity, rather than fundamental developments... we add risk to our portfolio in credit this month. We maintain our OW of EM vs. DM stocks (given expectations for easing policy and eventual COVID reopening in China, cheap valuations, and multi-year underperformance).”
Raft of Fed speakers today: Williams, Barkin, Waller + Kashkari, Mester and then Bostic. Also Peloton (PTON) earnings should be fun!
Oil was swept away by the strong currents but also because China’s lockdowns are not about to be lifted. Spot WTI dropped below its 50-day SMA.
Bitcoin is a great barometer for risk now and we see its decline as evidence of significant deleveraging... hardly the safe haven. Feels like we are kind of an important point in the cycle... according to Glassnode some 40 per cent of Bitcoin investors are now under water.
Neil Wilson is the Chief Market Analyst at markets.com
