Displaying items by tag: tech

(New York)

Markets are having a very rough day. Both the S&P500 and the Dow are down almost 3%. Financials have been leading losses. The selloff appears to be centered on fears over the fragility of the US-China trade “truce”. Treasury bonds have been rallying, leading to selloffs in tech and banks. The Treasury curve started to invert yesterday, which also seems to have spooked investors.

FINSUM: What a difference a day makes! Just yesterday it seemed like stocks might be lined up for a nice end of year run. A day later, the trade trace has created more tension than before and the yield curve is starting to invert.

(New York)

One of the pillars of this nearly decade-long bull market has been the growing profits of US corporations. US stocks have seen their profit margins rise steadily since 2009 and are around a record mark of 10%. Analysts continue to forecast growth to around 12% in 2020. At the beginning of the 1990s, margins were just half of now. However, this narrative is fraught as just 10 stocks account for around 50% of all the margin growth in the S&P 500 since 2009. Those stocks? All tech, unsurprisingly. But what it means is that many other companies are not as healthy as many assumed, and as we enter a tougher era for margins, including higher labor costs, increased input costs, and higher interest costs, there could be some steep falls.

FINSUM: We think this is a reason to worry, as when margins really start to fall on the back of higher rates and costs, investors are going to be very alarmed.

(New York)

Something interesting has been happening for value stock investors lately—value stocks have been outperforming. Value investing as a discipline has been suffering for at least a decade as growth stocks won out. The malaise has been so poor that many have given up on the philosophy altogether. So with the recent turnaround, should that be reconsidered? Barron’s says the answer is a firm “no”. The recent outperformance of value may just be an aberration related to movements in particular sectors. The reality is that most value indexes have little exposure to the sectors that are suffering, like tech and consumer discretionary. Therefore, their outperformance is more a coincidence than a turn in the market.

FINSUM: We’d have to agree with this view. It does not seem like there has been some fundamental change in investors’ thinking, more that anxiety has just struck the most growth-oriented sectors.

(San Francisco)

As of today, the FAANG stocks have shed over $1 tn in market cap since their recent highs. The turmoil pulled markets down around 2% across indices, with the Dow seeing the biggest drop at 2.21%. The losses mean once again that indices have lost virtually all their gains for the year. As one CIO put it, “absolute bloodbath for technology stocks”. The selloff seems very forward looking, as investors are quite focused on what might go right and wrong in 2019. The biggest worries seem to be around trade.

FINSUM: Here is a question: why exactly is tech selling off? Apple obviously has its own problems, but those particular issues don’t seem very relevant to Facebook etc. Panic?

(San Francisco)

Apple’s CEO Tim Cook went on the record yesterday telling the market that he feels pending regulation of the tech sector is inevitable. Cook has been a recently strong critic of the data abuses exhibited in the sector. He argued that the free market is not doing its job to protect privacy and that governmental action is necessary. In cook’s own words, “Generally speaking, I am not a big fan of regulation … I’m a big believer in the free market. But we have to admit when the free market is not working. And it hasn’t worked here. I think it’s inevitable that there will be some level of regulation . . . I think Congress and the administration at some point will pass something.

FINSUM: We have to agree with Cook about the likelihood of regulation here. The financial incentives for companies are not aligned with protecting privacy, so the government would likely need to step in to make that happen.