Weekend wrap: the tech tumble
US markets this week dragged every sector on earth down. And yet, oddly, automotive seemed to be marginal winners.
This week in economics seemed on the outset to be a loser. The whole US market correction fiasco was spurred on by the technology stock crash which started last Thursday and at its core was driven by what investors refer to as the FAANG stocks (Facebook, Amazon Apple, Netflix and Google). But the other main offender of the loss was none other than my favourite overvalued electric car maker, Tesla (we'll talk about Tesla in-depth later next week).
I'm going to take a step back from the rhetoric for a minute though and somewhat criticise the mainstream finance media in general. Bloomberg specifically rang alarm bells which spurred the selloff on, calling it a crash initially. Let's be honest though, it isn't. Tech and the NASDAQ are in a brilliant place right now. It's 32% up YOY and even higher up on it's March crash lows (yes that was a crash). So far NASDAQ has only lost 11% in value in the latest selloff and many clued in traders knew to take some sort of profits from the massive and extremely bullish tech rally which was catalysed by Coronavirus and as the at-home economy continues to grow.
What might've also surprised the amateurs though was seeing how unaffected American automotive companies were this week by the large scale selloff. Ford (F) for example finished the week 2.34% up on the previous week's end value of $6.84. And while the week was turbulent it does bring up a good point about the OG of American automotive when it comes to the world markets.
You see, automotive has been experiencing a large scale and worldwide downturn for about 3 years now. Year on year sales growth has been poor and issues with credit worldwide have brought those markets to a grinding halt. Equally issues with infrastructure in our megacities and climate change have been big drivers in the unwillingness to purchase vehicles. That was all relevant only prior to COVID19.
Post COVID19 is a new world. And the winners in the long term (aside from the stay at home economy) may just well be automotive. One of the biggest things that COVID19 has allowed automotive to do is speed up. Ironically it's because everyone else has been forced to slow right down. Commodities, retail, investment and construction have all been slowed to snail pace where in previous years the exponential growth of tech have forced all of those sectors to keep up.
Now, the funny thing is, tech didn't slow down, it sped up as well. But what changed was the rest of the world discovered that the technology sector is in its own class. It doesn't need to affect other sectors, and that wasn't more evident than in this week's selloff. Where on Friday NASDAQ ended up an extra 0.80% in the hole? the S&P and Dow Jones showed signs of recovery.
Circling back to automotive, though, the lack of investment over the past months and the lack of reason to go outside valuations and shares have somewhat flatlined. The start of September on the other hand, a month which is notoriously bad on the markets, has been good for automotive. So why is this? And is it of an advantage to the Robinhood investor?
I'll answer the second question first, maybe. But the answer to the first will help you understand why that's a maybe. The truth is it's going to depend a lot on the Post COVID19 world. Are the consumer habits we're learning right now going to get locked in for 2021, 2022 and beyond? Or is the consumer going to fall back into the same habits.
The first thing I want to see before declaring automotive coming into a bull is worldwide public transport utilisation over Q4 2020 and Q1 2021. Many megacities have been driven by public transport over the past 2 decades thanks to a lack of decent infrastructure and centralisation of economies in CBDs. When COVID19 came about, that all changed. Most employees switched to work at home, and the result was found to be fantastic for companies. Efficiency has increased and overhead costs have plummeted.
The second thing I want to see in the coming year's political priorities in the US and Europe. If we see a shift of the narrative back to climate change from disease prevention than all will be well with the world. If not? The big winners of the post COVID19 economy will be big oil and resources. And with the real possibility of a Donald Trump re-election that is well on the cards.
Either way? It presents an opportunity for you, the investor. The key is to keep your ear to the ground and to figure out which the polls are swinging.
Bbefore I finish off, those who are still invested in tech after this week's pain? Have hope. Modelling shows that the tech selloff may continue until the NASDAQ corrects to pre-COVID19 levels which is a decline of 18% (an additional 7%). However, the amateur investor needs to run out of stock to sell eventually. And there isn't another Softbank to trigger a second selloff.
My only advice would be to have some cash handy, with every selloff there comes opportunity. And the truth is? Tech isn't slowing down anytime soon. Apple's (AAPL) current earnings per share still top $0.70, a number which is more than 4 times that of Ford (F). So if you're still in, and bought at the top? Have some hope and hold a bit (take some profits on others). If you aren't in yet? Keep the cash handy, even at today's levels the big semiconductor companies and FAANG stocks are way under what they were at the end of August peak.
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(Marcus has holdings in Apple (AAPL) and multiple other unmentioned tech companies.)