🔻 Tech’s big drop, unpacked

Color of the week: red... We're not talking lipstick. Last week the Nasdaq index entered correction territory — a drop of 10% or more from the most recent high — for the first time since March. The Nasdaq is the techiest of the Big Three US indexes.

• Big Tech: More than half of the Nasdaq’s 3K+ stocks are tech. After gaining 22% last year, it's down 13% from its November record (#corrected).
• Big Red: 40% of Nasdaq stocks have fallen by half since November.

Some ingredients… of the tech sell-off: Most are related to inflation, which is nearly at a 40-year high as demand > supply. To tame rising prices, the Fed is expected to hike rates at least three times this year. The problem for tech stocks: They’re “competing” with other investments.

• Rising interest rates can make US gov’t bonds and savings accounts more attractive compared to riskier assets like tech stocks.
• Wall Street tends to value stocks based on their potential future returns (key word: future). But $1 today is worth more than $1 tomorrow because… inflation.
• As interest rates rise, the value of a dollar today also rises because it could be invested ASAP in bonds or savings with higher returns. But the prices of many high-flying tech stocks are based on potential growth. That’s one reason Tesla’s worth 12X as much as GM, despite having only a quarter of its sales.
• Opportunity cost: As the potential returns from lower-risk investments (like US gov’t bonds) rises, investors want to see higher returns from tech to justify prices.

The TLDR… Tech shares soared as the Fed gave us near-zero rates during the pandemic, since any potential growth seemed better than zero interest. Now that rates are rising, tech is rebalancing. The Dow — which is heavier on non-tech stocks with lower expectations of fast growth — is barely down.

Anti-antitrust... Big Tech is fighting for its platform power. Last week a Senate panel approved an “Innovation and Choice” bill that would force Amazon, Google, Meta, and Apple to stop favoring their products over competitors’. Think: Amazon putting its Basics at the top of search results. Smaller techies like Yelp and Sonos support the regulation, which they say will boost competition. The bill is moving on to a final vote, but analysts say it’s unlikely to pass before midterms, when Dems could lose the numbers needed to clear it.

Boom times for the YOLO-conomy... While pandemic powerhouses struggle (cough, Peloton), shares of Prada, Burberry, and Richemont spiked last week after the luxury retailers reported strong demand for designer goods like chic puffy jackets and diamonds. Sales have actually exceeded pre-pandemic levels for several companies, despite travel restrictions and soaring prices, which wealthy consumers are less sensitive to. As younger spenders treat themselves to Valentino instead of vacays, luxury brands expect profits to keep rising.

Everyone wants BinaxNow… now. Abbott Labs’ at-home Covid test accounts for 75% of US test sales, but good luck finding one. Test makers Abbott, Roche, and Becton Dickinson saw massive profits last year as we left the couch. But when cases fell this summer, Abbott laid off workers and closed factories, which led to test shortages. As Omicron surges, Abbott’s revving up production. Biden is paying the company $2B to provide nearly half of the free Covid tests Americans have started ordering. We’ll see how Omicron affected profits when Abbott reports on Wednesday.

Cybertruck is cyber-stuck... Tesla rolls up with earnings Wednesday, and competition is more electric than ever. Tesla has reportedly pushed back production of its much-hyped electric Cybertruck to 2023. Meanwhile, rival EV maker Rivian is already delivering trucks, and Ford plans to drop electric F-150s on driveways this spring. Still, Tesla’s car deliveries doubled last year from 2020 and its solar-power biz turned profitable. But Tesla’s facing heavy regulatory scrutiny, while a Tesla driver is facing felony charges after a fatal crash involving Autopilot.

• Spinout: Peloton shares plunged after a CNBC report said the company was pausing production of its bikes and treadmills. Pelo-demand fizzled last quarter after a pandemic boom, and store closures and layoffs could follow.
• #Influence: Instagram and TikTok rolled out paid subscription tools for creators ranging in price from $1 to $100/month, in a bid to lure top influencers and their followers from rivals.
• Gamed: Microsoft made a bid to buy Candy Crush maker Activision Blizzard for $70B in the largest cash acquisition ever — it would cement gaming’s crucial role in Microsoft’s metaverse plans.

• Crypto: Millions of credits for offsetting CO2 emissions in the past few months have been linked to new crypto tokens, which could make corporate climate efforts more transparent — some aren’t convinced.
• Meta: New patents granted to Meta (fka: Facebook) give us a sneak peek into its metaverse plans, from letting you bring real objects into virtual worlds to clothing that wrinkles as your avatar moves.
• Work: America’s largest companies hired more Black and female CFOs last year than ever before, as leaders face pressure to diversify C-suites. Female CFOs at the top 500 companies reached a record 15%.

• Monday: Earnings expected from: IBM, Halliburton, and Logitech
• Tuesday: Earnings expected from: Microsoft, Johnson & Johnson, Verizon, Texas Instruments, American Express, General Electric, 3M, Lockheed Martin, Capital One, and Alaska Air
• Wednesday: Fed monetary policy meeting. Earnings expected from: Tesla, Abbott Labs, Intel, AT&T, Boeing, Anthem, and Levi Strauss
• Thursday: Weekly jobless claims. Earnings expected from: Blackstone, Apple, Visa, Mastercard, Comcast, McDonald's, Altria, Sherwin-Williams, and Atlassian
• Friday: Earnings expected from: Chevron, Caterpillar, Colgate-Palmolive, and Phillips 66

Authors of this Snacks own: Bitcoin, and shares of Tesla, Microsoft, Ford, GM, Google, Apple, and Amazon

ID: 2002735