Stretched to the downside?
Tech stocks have been at the vanguard of this week’s sell-off. We’ve seen some of the ‘Magnificent Seven’ release results this week, which, while beating expectations for revenues and earnings, have sold off sharply regardless.
Two cases in point: Alphabet after the close on Tuesday and Meta Platforms last night. With the former, the stock ended down 9.5% yesterday, contributing to a 2.4% decline in the NASDAQ 100, as the market reacted to disappointing numbers on Cloud sales. Meta Platforms had blow-out revenues which were up 23% on the quarter. But it warned on ad sales in the current quarter, in part due to increased geopolitical tensions, and this was enough to see the stock fall around 4% overnight.
But the tech decline hasn’t been selective, and we saw most of the majors slide lower in early trade today. One of the issues is continued bond market weakness. On Monday we saw the 10-year Treasury note yield rise above 5.00%, hitting a fresh 16-year high, before it dropped 20 bps in a straight line. But it has crept higher ever since, and was within a few basis points of 5% earlier today. Raised borrowing costs have a strongly negative effect on tech/growth stocks as we saw back in the first nine months of 2023. If yields remain high, or head higher, then the downside pressure on tech will remain. But if Bill Ackman and Bill Gross are correct in suggesting the bond market sell-off is coming to an end, equities could get some relief. Although if Gross’s call for a recession to start this year is correct, any rally may be short-lived.
Two cases in point: Alphabet after the close on Tuesday and Meta Platforms last night. With the former, the stock ended down 9.5% yesterday, contributing to a 2.4% decline in the NASDAQ 100, as the market reacted to disappointing numbers on Cloud sales. Meta Platforms had blow-out revenues which were up 23% on the quarter. But it warned on ad sales in the current quarter, in part due to increased geopolitical tensions, and this was enough to see the stock fall around 4% overnight.
But the tech decline hasn’t been selective, and we saw most of the majors slide lower in early trade today. One of the issues is continued bond market weakness. On Monday we saw the 10-year Treasury note yield rise above 5.00%, hitting a fresh 16-year high, before it dropped 20 bps in a straight line. But it has crept higher ever since, and was within a few basis points of 5% earlier today. Raised borrowing costs have a strongly negative effect on tech/growth stocks as we saw back in the first nine months of 2023. If yields remain high, or head higher, then the downside pressure on tech will remain. But if Bill Ackman and Bill Gross are correct in suggesting the bond market sell-off is coming to an end, equities could get some relief. Although if Gross’s call for a recession to start this year is correct, any rally may be short-lived.
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