Satya Nadella, CEO of Microsoft Corp., gestures as she speaks during a Bloomberg event on the opening day of the World Economic Forum (WEF) in Davos, Switzerland, Tuesday, January 21, 2020.
Simon Dawson | Bloomberg | fake pictures
Tech investors are getting a dose of reality after a historic run.
Nasdaq, which gets about 40% of its value from just six tech stocks, has just closed its first two-week losing streak since the period ended May 1. The index fell 1.3% in the last five trading days, led by a 16% drop in Intel stocks and a 5.6% decline in Tesla.
It’s just a minor pullback given the Nasdaq’s strength, especially in the face of a global pandemic and rising unemployment. The Nasdaq is up 16% over the year and remains only 3.8% from its all-time high. It has more than doubled in the past five years, beating the S&P 500’s 55% increase.
But the drop is notable because it was triggered by disappointing forecasts from Microsoft and Intel. Both companies provided better-than-expected results in the last quarter, but gave guidance for the current period that followed analyst estimates.
Tesla, whose shares still rose 240% this year, fell during the week even after the electric car maker reported a fourth consecutive quarterly gain.
Powered in part by Tesla’s massive rally, the Nasdaq recently hit its highest price-to-earnings ratio since 2005, according to FactSet. Meanwhile, initial jobless claims topped a million for the 18th straight week, and states are willing to stop paying the federal enhanced unemployment benefit of $ 600 per week in late July. Coronavirus cases in various US states continue to reach daily records.
“The market has entered a casino mindset more than ever,” said Brian Yacktman, chief investment officer at YCG Investments, which oversees about $ 1 billion in assets. “Every time the momentum breaks, people start to question what they are really buying and what they actually own.”
Yacktman’s investments include Microsoft, Facebook, and Alphabet, and he has not been selling those bets despite the recovery, because “they are so difficult to disrupt and have tremendous pricing power and volume growth opportunities against Covid.” . said.
It puts Tesla in a very different category and says that for stocks that are divorced from the fundamentals of the company, “it is very possible that gravity will start to roll back.”
‘Price perfectly’
The biggest question for next week is whether the specific issues raised by Microsoft and Intel mean trouble for other big tech companies. Facebook reports the results on Wednesday, followed by Apple, Amazon and Google Alphabet holding on Thursday.
In Microsoft’s forecast, the company cited weakness in spending for small and medium-sized businesses and a slowdown in bookings on LinkedIn. Intel said its next-generation processors would ship later than expected.
Quincy Krosby, chief market strategist at Prudential Financial, told CNBC on Friday that the technology stocks have been “perfectly traded” ahead of this reporting season.
“Next week’s earnings will be very important to see whether the market continues to punish them or not,” Krosby said.
CLOCK: Technology has become the security trade
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