This is another blow for the Nasdaq, which entered correction territory this week. Yesterday, buyers tried to get indexes back on track for part of the session, before giving up in the face of the counter-attack of the bearish legion. When nine of the top ten S&P500 stocks fall, it's hard not to get swept away with the bathwater. The exceptions are Morgan Stanley (+4.3%), which has outperformed the competition in Q4 2021, Pfizer, a defensive health record or Booking, because the Omicron variant of the coronavirus will probably not prevent tourism from continuing. As for the rest, the technology sector has again been laminated, except for a few rare names (Tesla, ASML, Electronic Arts). The Nasdaq 100 gave up 1.3% yesterday and is now down 9% since January 1. The S&P500 was down 1.1% for a decline of 6% in 2022.
Stock markets heavyweights are no longer popular, and it is obviously too early to buy the market downturn. We have entered a period of great confusion, that is characteristic when volatility rises. Many investors are pulling out of overly risky or overly valued compartments. The VIX index has risen above 25 points, a level it had only exceeded twice in the last six months, very briefly in September and a little more at the November/December hinge, when it rose to 31 points.
Jeremy Grantham, a well-known Investment Strategist that founded GMO, believes that this instability is the start of something much bigger. He stated in a note published yesterday on his website that the US stock market is in a ‘superbubble’ that is about to pop. He argues that the S&P 500 is in its fourth superbubble after 1929, the dot-com bubble of 2000, and the housing bubble that led to the 2008 financial crisis.
All these superbubbles had a series of distinct features and, according to him, these shared characteristics have already occurred in this cycle. One of these features was “was an acceleration in the rate of price advance to two or three times the average speed of the full bull market. In this cycle, the acceleration occurred in 2020 and ended in February 2021, during which time the NASDAQ rose 58% measured from the end of 2019”. Other features include sustained narrowing of the market and unique underperformance of speculative stocks: “this occurred in 1929, in 2000, and it is occurring now”.
Granthams explained that all previous large bubbles have deflated back to their trend levels, which in the current case would mean reverting to “a trend value of about 2500 on the S&P 500”. He concludes with a “Good luck! We’ll all need it.”
Economic highlights of the day:
There is little data today, except for the US leading indicators for December.
The dollar is down to EUR 0.8810. The ounce of gold is firm at USD 1841. Oil is down at USD 84.65 per barrel WTI and USD 87.39 per barrel Brent. The yield on 10-year US debt eases to 1.77%. Bitcoin takes a slap at USD 38,400.
* Netflix falls 20% in pre-market trading and is expected to open at a 21-month low after reporting a lower-than-expected increase in new subscribers in the October-December period on Thursday night and a forecast for the current quarter that fell short of Wall Street consensus. Several analysts lowered their recommendations.
* Schlumberger - The world's largest oilfield equipment and services company reported Friday a 61% year-on-year increase in quarterly profit thanks to soaring oil prices. The stock gained 1.2% in pre-market trading just after the results were released.
* Intel announced Friday that it plans to invest more than $20 billion in the construction of two new semiconductor production plants in Ohio.
* Pfizer announced Friday that it has received special approval from Japanese authorities to administer its COVID-19 vaccine to children ages 5 to 11.
* Peloton CEO John Foley announced a review of its workforce size and production levels. The company's stock price had previously fallen 23% in response to CNBC reports that the group had halted production of exercise bikes and treadmills in the face of a significant drop in demand.
* Chevron announced on Friday that it was preparing to withdraw from its natural gas joint venture in Burma due to the political situation in the country.
- Beyond Meat - HSBC raises its recommendation to "hold" from "reduce".
- KB Home: Seaport Global Securities raised the recommendation on KB Home to buy from neutral. PT up 28% to $53.
- Netflix: Monness, Crespi, Hardt & Co cut the recommendation to neutral from buy, while Macquarie cuts it to Underperform.
- Signature Bank: UBS raised the price target to $484 from $442. Maintains buy rating.
- SVB Financial: Janney Montgomery Scott cut the recommendation to neutral from buy. PT up 8% to $700.
- Twilio: BTIG initiated coverage of Twilio Inc. Class A with a recommendation of buy. PT set to $260.
- United Airlines: Raymond James cut price target to $67 from $75. Maintains outperform rating.
- Webster Financial: Raymond James upgrades to strong buy from outperform. PT up 19% to $73.