Pre-sale stock: why tech stocks are bleeding right now

What’s happening: The Nasdaq fell nearly 4% on Tuesday, sending the index to its lowest level since December 2020. The S&P 500 lost 2.8%. It is now 13% below its January high.

“The market has fallen significantly from its peak at the beginning of the year, and recently it has been in a sharp decline,” said Brad MacMillan, chief investment officer at Commonwealth Financial Network.

gains: Shares of major tech companies surged after the market crash of 2020. Their businesses proved resilient, and investors — flush with cash thanks to efforts by central banks to prop up the economy — rushed to cash in on their rapid growth.

Now, Wall Street is giving these companies another look amid doubts about their ability to maintain the momentum needed to justify their high valuations. Last week, Netflix’s earnings disaster sent its shares plummeting.
Google’s father the alphabet (The Google) It said Tuesday that its first-quarter sales growth slowed to 23%, just below Wall Street expectations. Alphabet’s full-year sales growth for 2021 was 41%. Shares were down more than 3% before the report was released on Tuesday and were down another 4% in pre-market trading on Wednesday.

“They don’t tend to lose their earnings, so I think that was the big shock to the markets,” Justin Onuikosi, head of retail investment at Legal and Public Investments, told me.

Economic concerns: The Federal Reserve is withdrawing support for the economy to fight the highest rate of inflation in four decades. But if the interest rate hike is too aggressive, it risks entering the US economy into a recession, which will further affect corporate earnings.

Deutsche Bank, which earlier this month became the first major bank to forecast a US recession next year, said Tuesday that it now expects a “significant” downturn.

In a report titled “Why the Next Recession Will Be Worse Than Expected,” economists said that “it is very likely that the Fed will have to apply the brakes more firmly, and a deep recession will be needed to stem inflation.”

Growth is also slowing sharply in China, the world’s second-largest economy, as the country tries to curb the spread of the coronavirus. This is bad news for the rest of the world.

“Obviously we need Chinese demand while we recover,” Onoikosi said.

High rates: US bond yields, moving opposite prices, have jumped this year in anticipation of the Federal Reserve’s plan to raise interest rates. The yield on the 10-year US Treasury is now 2.76%. At the beginning of 2022, it was close to 1.5%.

As safe debt yields rise, investors begin to rethink gambling that risks higher corporate future earnings. Tech stocks, in particular, are starting to look less attractive.

I look ahead: Not all profits were a cause for concern. Microsoft (MSFT), which also published results on Tuesday, said its revenue rose 18%. Its shares are up 4% in pre-market trading. but with Facebook dead (FB)And apple (AAPL) And Amazon (AMZN) Looking ahead this week, the markets are likely to remain on the alert.

“Because these stocks are bigger and bigger and bigger, any disappointment will have a big impact,” Onuekwusi said.

Russia stops natural gas supplies to Poland and Bulgaria

After the Russian invasion of Ukraine, fears mounted that Moscow could use the country’s energy supplies as a weapon as a way to retaliate against the West to punish sanctions.

This is no longer the default. Russia on Wednesday cut natural gas supplies to Poland and Bulgaria after they refused to pay in rubles, dramatically escalating tensions.

“Energy is increasingly militarized as the war in Ukraine appears to be entering the long haul and expectations grow that the European Union will impose a crude oil embargo on Russia,” said Susanna Streeter, an analyst at Hargreaves Lansdowne.

The European Commission described the decision to halt supplies as an attempt to “blackmail” and said it was coordinating a response among EU member states.

Poland was preparing for such a move by importing more LNG from countries like Qatar. But this development is fueling fears that Russia will hit Germany by stopping the flow of gas through the important Nord Stream pipeline.

Germany has warned that it will plunge into a deep recession if its supplies of Russian natural gas are suddenly cut off, resulting in $234 billion in lost economic output over the next two years and hundreds of thousands of jobs.

Investor Insights: Natural gas prices in Europe rose on the news, rising more than 20% early Wednesday before pulling back.

Stocks in Europe largely ignored the development, but the euro fell. Against the strong US dollar, it fell below $1.06 for the first time in five years.

Tesla shares just fell. This is bad news for Mask

In yesterday’s edition of Before the Bell, we highlighted that Elon Musk’s deal to buy Twitter poses a risk Tesla (TSLA) Involved.

Investors did not take long to indicate that they were upset. Tesla stock fell 12% on Tuesday, marking its worst day since September 2020. The decline wiped $126 billion off the company’s market value.

Remember: Musk has secured more than $25 billion in debt financing from banks including Morgan Stanley. But he still needs to pay nearly $21 billion on his own.

Most of Musk’s fortunes are tied up in Tesla stocks. This raised questions about whether he could dispose of part of his 17% stake to get the money.

Nor is it clear to what extent Musk is involved in Twitter. Could it be getting too prolonged, giving him less time to focus on running the world’s most valuable automaker?

It may take some time for investors to sort out these unknowns. But their unease puts pressure on Musk, who used his Tesla possessions as collateral for some of the loans he took out. As the value of his stake drops, he has less wiggle room, which could pose a problem as bankers and lawyers work to close the deal.

next one

Boeing (Bachelor of)And Harley Davidson (Pig)And Kraft Heinz (Different)Steve Madden and spotify (spot) Report findings before US markets open. dead stronghold (F)And hertz (CNTB)And Mattel (mat)And PayPal (PYPL) And Qualcomm (QCOM) Follow after closing.

Coming tomorrow: Apple and Amazon wrap up Big Tech earnings.

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