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High Stakes

Tech Letter

We get a deeper view into the current state of the tech market with the tech behemoths reporting this week.

I don’t expect a Netflix shocker, but the market doesn’t need one for tech stocks to trend lower.

Alphabet, Microsoft, Meta, Amazon, and Apple earnings are on deck at a time when $30 billion of outflows were sucked out of the equity market in the past 2 weeks.

As the falling knife dips lower, many traders are looking out for a decent counter-trend rally, I am too, but you better sell the rip as well. So we stay in a no man’s land of individual stock picking at a time when the garden variety of blasé indexing is now dead.

Another paradigm shift that needs to be addressed is the death of the FAANGs.

The writing has been on the wall for quite some time with Meta or Facebook signaling to the outside world that its business model is broken and news of today of Apple’s factory in Kunshan, China ordered for covid closure is a bad omen for Apple earnings.

At a broader level, Head of the IMF Kristalina Georgieva today suggested sovereign debt defaults are coming down the pipeline which means the IMF will most likely construct a rescue deal that ends in understanding why the national debt mattered.

The world continues this sovereign crisis in all emerging corners of the world from Sri Lanka and Turkey because when the US Fed raises rates, it raises rates on the whole world.

Georgieva also said that Ukraine needs $5 billion per month for the Ukraine economy to survive and that economy is already down more than 50% year to date.

The continuing of debt plugging around the world doesn’t necessarily breed confidence in tech stocks as this industry is heavily reliant on globalization working and cheap rates.

Many sovereigns are starting to freak out about the debt dilemma as we see Japan’s yen forge ahead to 130 to $1 USD.

It appears that we are getting a temporary reprieve in oil and fertilizer stocks because China is so locked down that demand destruction will improve the balance of supply and demand.

Clearly, many of these external factors are unsustainable, and yet they are deeply affecting the Nasdaq index.

The rise in interest rates will have many unintended consequences and the one that matters most for us is delivering higher financing costs to the tech sector.

Without the globalization tailwinds, investors must ditch the double and triple standards of before and solely focus on the fundamentals of a tech firm.

What a thought!

Now that tech firms are accountable for their own performance, we will finally see who can punch above their weight.

Specifically, issues in dire need of netting out are the cloud, enterprise, and the state of the American consumer.

FAANG + Microsoft have lost more than $2.1 trillion in combined market value between them since December, representing nearly half of the S&P 500’s $4.4trn loss over the same period.

This has left five of the six in bear market territory with falls of more than 20%, with Apple the sole exception.

I am expecting strong numbers from Microsoft and Apple as part of branching out in the tech story, where software, semiconductors, cyber security, and product-driven names such as Apple are on the winners’ side of the ongoing digital transformation.

Yet, I believe Microsoft and Apple will use this as a convenient time to guide weak which won’t help the stock prices.

It appears as many of the strong tech performances have been met with giant selloffs and management is acutely aware of that.

Before, liquidity was what mattered and now that has tremendously reversed and the quality of earnings matters more than ever at this point.

 

 

 

 

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