So which lead will investors down under take from Monday’s offshore sessions?
It might be just another Monday session, but there were a few hints as to some underlying factors exposing soft underpinnings for equities (and bonds at the moment).
Many US and global investors have rediscovered inflation (thanks to growing optimism about the successes of vaccination in more and more advanced economies) and have sold off bonds and forced investors to make several attempts to rotate out of megacaps like Apple, Amazon, Tesla etc and towards more traditional value stocks – banks, linear and analogue media and retailers for instance.
But more than two months into 2021 there does seem to be some new strands in investor thinking emerging – China’s sell off (see separate story) has developed quickly since late February and the dip into correction territory (a fall of 10% or more from the most recent peak on February 12) indicates an ever present nervousness about debt, bubbles (especially in US markets), some political fears about Hong Kong and relations with the new Biden Administration.
That dip could be reversed quickly with some ‘inspired’ buying but it does indicate a failure to accept the investment idea that there are more gains to come over the rest of the year in the world’s best performing economy.
Wall Street produces a very different set of doubts – the inflation fears are overdone as are the interest rate worries. Wall Street has grown – thrived even when rates and inflation have been much higher than they are now.
There are fears about asset price inflation (which is probably a more valid concern, like house prices in Australia and New Zealand are at the moment) but the way the sell-off has been concentrated in the Nasdaq – with minimal impact on the Dow and S&P 500 – suggests that investors are growing tired of the megatechs and other related stocks as an investment message. the Dow is just 1% under its all time high and the S&P 500 is less than 100 points.
But for the slide in Tesla, Apple, Amazon and other tech giants, both the Dow and S&P 500 would have seen much stronger gains in the past month, but the switch into more traditional industrials has more than offset those losses.
So while the rotation idea can be justified, this time around, its meeting a concern among investors about tech stock valuations and growth. It’s not interest rates or inflation fears – after all the Megatechs grew rapidly when rates and inflation were higher than they are now.
Nasdaq’s most recent correction was back in September as confidence grew about vaccinations and a growing belief that Joe Biden could win the Presidency and spend heavily. That correction phase faded as we went through the elections, the confused aftermath and into 2021.
Then that rebound started fading in late February. Nasdaq flirted with a correction for the first time this year last Friday morning (actually dipping briefly into the zone when down 2.6%, but escaped with the solid rise late in the session).
On Monday no such escape as investors bailed and bailed, leaving it down 2.4% on the day and 11% from its February 12 intra day peak (and down 10.5% from its closing high the same day).
And on the way down there have been a couple of high profile casualties as a result – Tesla continues to sell off and is now down 35% in the past month and 21% in the past five days alone. Tesla slid nearly 6% on Monday.
That’s a loss in value of almost $US290 billion in value (meaning the loud Elon Musk is a bit poorer on paper).
And after Monday’s 1.6% slip, Amazon shares have now corrected – while they are down 11% in the past month they are off more than 16% from the most recent high back in February 2020 – pre Covid!
Apple shares hit a three-month low on Monday and it has already corrected and is approaching the lair of the bear – a 20% plus fall from its most recent peak. It’s all time high of $US145.09 was hit on January 26. It was just under $US116.36 on Monday, down 19.8% from that all time high.
Apple shares are down more than 8% in the past five sessions alone (4.1% on Monday alone) and for the world’s most valuable company that is a crunch. The market value is approaching $US2 trillion ($US2.04 trillion at Monday’s close). At its peak it was worth over $US2.44 trillion, so the loss has been a not inconsequential $US400 billion.
And in another oddity, Apple’s retreat has not impacted Berkshire Hathaway’s value one bit – in fact the share price of Apple’s biggest shareholder is up 11.8% year to date – Apple is down nearly 12%.
Warren Buffett’s company is still outperforming the S&P 500 by a big margin. The S&P 500, the index measures his company’s long term performance against, is only up just over 2% year to date.
Now you’d think the slide in Apple shares would have clipped the value of Berkshire stock, but the Buffett empire contains a host of businesses that are seen as doing well when value is the driver in the markets – car dealers, mobile homes, food and grocery distribution, railways, electricity distribution, insurance and big stakes in banks and other key industrials (Coca Cola and Amex as well as Bank America shares).
The renewed lover affair with Buffett and Berkshire’s wide mix of businesses might not last, but it does tell us that Fear Of Missing Out (which drove prices of Tesla, Apple, Facebook, Netflix et al higher last year) also works in the staid, usually dull industrial parts of the market.
