Market darling tech stocks seem to be dropping like flies at the moment. Amazon [NASDAQ:AMZN] was the last cab off the rank, dropping 20% in the overnight market after results were released.
Their numbers weren’t a disaster, but they missed expectations in a few areas, which was enough for investors to head for the exits. It looks like their AWS business is the cash cow supporting the retail side of the business, which is seeing margins contract.
Meta Platforms [NASDAQ:FB] is going from bad to worse, plunging another 25% after their soggy results were released. I don’t know about you, but I only check in on Facebook every now and again to see if a long-lost friend has gotten in contact (they haven’t).
Their plunge into the metaverse is expensive and high-risk. I played a game with their VR headset and wanted to throw up after wearing it for about five minutes. Apparently, the nausea subsides after you get used to playing with them for a while, but I can’t say I want to rush back to find out.
If the most crowded trades in history in the biggest tech stocks are unravelling, there could be plenty of downside in them to come.
In today’s ‘Closing Bell’ video, I show you the Nasdaq since the ‘80s and overlay past bear markets onto the current sell-off to give you a sense of how far it can fall. I also look at a 100-year chart of the S&P 500 and show you what could happen if the market follows a similar path to the sell-offs in 1973–74, 2001–03, and 2008–9.
A hedge fund trader mate of mine said to me yesterday that all the young guns are trying to prove themselves heroes for picking the rally ahead of the Fed pivot. But his view is that as earnings roll over and growth plummets, they may find themselves buying the final short squeeze before the whole thing implodes.
The short-term path of markets is once again in the hands of the Fed and their rate rise decision and commentary in mid-November.
They have to walk a very fine line between throwing the market a bone of dovishness to halt the slide from turning into a rout and maintaining their hawkishness to stare down inflation.
I’ll simplify all of the above into a simple statement: The market is short-term bullish, medium-term bearish, and long-term bearish.
Until next week,
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Murray Dawes,
Editor, Money Weekend
