Thursday, Oct 19, 2023
sanctions, terrorism funding, big tech is stretched, bonds are hurting, tokenization is struggling
“People know what they do; frequently they know why they do what they do; but what they don't know is what what they do does.” – Michel Foucault ||
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IN THIS NEWSLETTER:
Equities are stretched, and it’s Big Tech’s fault
Crypto and terrorism
Tokenization disappoints again (for now)
Bonds are hurting big time
WHAT I’M WATCHING:
Long big tech is crowded
Things are looking increasingly stretched in equities.
According to the latest Bank of America Fund Manager Survey, the most crowded trade at the moment is still “long big tech” (I will going forward use uppercase Big Tech to avoid an excess of quotation marks, pretty as they may be). This has repercussions for the crypto market, not necessarily good ones.
(chart by BofA via Daily Chartbook)
Why it matters:
“The most crowded trade” is usually a euphemism for “the most overvalued”, which implies that Big Tech is the category most likely to suffer a sharp correction.
This is especially relevant given that Big Tech has been largely responsible for all the US stock market gains so far this year.
Take a look at the Nasdaq vs small-caps:
(chart via TradingView)
Nasdaq, dominated by big tech, is up 27% year-to-date. The US small cap 2000 index is down 2%. Imagine a sharp slump in tech stocks (even sharper than what we’re already seeing), and the picture looks pretty bleak.
What’s more, the rosy outlook for Big Tech is starting to look less rosy. Nvidia’s share price has slumped more than 7% since the beginning of the week on the news that the US Administration is planning to curb exports to China of AI chips, Nvidia’s star product. Nvidia’s gathering clouds also include possible anti-trust action: in September, its offices in France were raided by the country’s anti-competition authority. And it’s not just Nvidia: the US Federal Trade Commission has sued Amazon for monopolistic behaviour. Google is currently embroiled in an antitrust trial.
And Big Tech is not immune to revenue disappointment and margin squeezes. Tesla’s shares dropped almost 5% yesterday after an earnings miss.
The uncertainty regarding Big Tech is evident in the dispersion of earnings forecasts, much wider for this segment than for just about any other. I’m not surprised – it’s hard to get a numeric handle on regulatory issues, just as it’s hard to accurately forecast the impact of artificial intelligence. The greater the uncertainty, the greater the chance of disappointment.
(chart by Barclays via Daily Chartbook)
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