TRACKRECORD DAILY
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TRACKRECORD DAILY

Why are tech stocks under pressure?

The energy prices, though a concern, will not hit all growth stocks equally.

The tech sector was hit by the double whammy of higher energy prices (inflation fears hitting growth stocks) and Facebook’s system outage for its social media platform for hours. The former will be a persistent factor going forward and the latter is just a temporary blip on Facebook’s inexorable march higher in valuation over time.

The energy prices, though a concern, will not hit all growth stocks equally. The profitable tech companies which have no need for funding and which continue to dominate with their business models will eventually be seen as cheap when the dust settles.

Selling companies which are scaling and growing their revenues/profits at double digits because of a rise in energy prices is not going to be a profitable habit in the long run.

Trading Tip

Penny Wise, Pound Foolish

This idiom is ubiquitous, being applicable to many endeavours we have in life. For trading, it can also apply to the act of taking profits too quickly. Usually, when one takes profit too quickly, it is often a result of a trader closing his position on an underlying asset once it has risen a few percentage points in order to lock in profits. By doing so, he is unable to catch trends which is where money is made in trading.

Don’t try to pick up pennies. Instead focus on the big picture and the big trends. That’s where the real money is.

DAY AHEAD

The RBA will release its policy & rate statement today. However, it is unlikely that the central bank will change its monetary policy.

TRADING PLAN

1. Currencies:

Keep short USD and long NZD, & CNH. The USD is weak despite the correction in stocks. This is good as it likely means that the market is positioned long USD now.

2. Commodities: Uranium & Energy — Energy shortage, supply constraints. These are phrases you will hear a lot of. Stay invested.

Key risks: The US debt ceiling, higher US bond yields, the Evergrande situation and Fedspeakers’ thoughts on the tapering process.

3. Equities:

Equity Index: Long Nasdaq futures. Correction continues but this will be an opportunity.

Single Stocks: The TrackRecord Model Portfolio picks remain robust but the tech sector getting sold and it’s time to pick up some on this dip.

Key risks : The US debt ceiling, higher US bond yields, Evergrande situation and Fedspeakers on the tapering process in the days ahead.

WHAT HAPPENED YESTERDAY

Market movement as of New York Close 4Oct 2021
  • OPEC+ stuck to its current output increase of 400k barrels per day despite pressure from various nations to boost production. This sent Brent Oil up +2.55% a barrel and US WTI oil up 2.3% per barrel.
  • Facebook faced its worst outage since 2008 with all its major services down for 6 hours with users flocking to other social media platforms during the outage. FB stock was down 4.9% following the outage and a whistleblower calling out Facebook for the ‘betrayal of democracy’ and prioritising its “own profits over public safety — putting people’s lives at risk.”. The correction of FB price also spilled over to other social media platforms. TWTR and SNAP both fell more than 5%.
  • The U.S. Dollar Index decreased -0.21% to 93.84 following uncertainties around the debt ceiling and the infrastructure spending bill. The USD did not benefit despite the shaky weak sentiment in the stock market.
  • The 10-year Treasury Bond yield rose 1 basis point to 1.49% and 2-yr yield remained stagnant at 0.27%.
  • The major indices fell sharply on Monday due to a rotation out of tech stocks. S&P 500 fell -1.30%, the Dow Jones Industrial Average fell -0.94% and the NASDAQ 100 underperformed, falling -2.16%.
  • The losses also spilled over to Asian markets this morning with the Nikkei 225 down -3.21%, Topix index down -2.05%, Kospi down -2.16% & Hang Seng Index down -0.7%.

HEADLINES & MARKET IMPACT

Britain deploys its army to deliver fuel as panic buying and shortages continue

Notable Snippet: British soldiers have begun delivering fuel in the U.K., as panic buying of gasoline continues in some parts of the country.

Around 200 military personnel are to be deployed as part of Operation Escalin, a strategy devised by the British government to help ease fuel supply constraints caused by a major shortage of truck drivers. Photographs Monday morning showed soldiers in combat fatigues at a BP refinery in Hemel Hempstead, England.

Army tanker drivers have been on standby since last week. The government’s Reserve Tanker Fleet — driven by civilians — was deployed Tuesday to deliver gasoline.

Panic buying of gasoline in the U.K. in recent weeks has caused long lines outside fuel stations, many of which have been left completely dry. While the situation has begun to improve in most parts of the country, shortages remain acute in London and England’s southeast.

COMMENTS/IMPACT: With a dent in their logistic channel, the UK is likely to be hit harder by supply side inflation than the rest of the world amidst this time of energy shortage.

U.S. trade representative Tai vows to enforce ‘phase one’ trade deal with China

Notable Snippet: Washington must enforce the U.S.-China phase one trade agreement and will raise broader policy concerns with Beijing, U.S. Trade Representative Katherine Tai will say Monday, according to her press office.

“Today, I will lay out the starting point of our Administration’s strategic vision for realigning our trade policies towards China to defend the interests of America’s workers, businesses, farmers and producers, and strengthen our middle class,” according to remarks prepared for delivery at the Center for Strategic and International Studies.

“China made commitments intended to benefit certain American industries, including agriculture that we must enforce,” Tai is expected to say.

COMMENTS/IMPACT: Perhaps after months of a harsh stance towards China, the Biden administration is finally waking up to softening against China. Although the article does mention that Biden will hold China accountable for failing to meet the requirements of the ‘phase one’ trade deal, compromises are likely to be made as horse trading goes on between the 2 economies.

France pushing to strengthen EU’s energy independence as gas prices soar

Notable Snippet: France is pushing the EU to reduce its energy dependency on foreign countries as gas prices soar across the continent.

The EU has been grappling with higher energy costs in recent weeks, prompting governments in Spain, Italy, Greece, and France to take drastic actions to soften the impact on consumers.

Eurozone finance ministers on Monday discussed the issue together for the first time at a meeting in Luxembourg.

“We don’t want to be dependent on the supplies coming from foreign [countries],” French Finance Minister Bruno Le Maire told reporters on Monday.

According to Le Maire, the EU should follow the French way, where nuclear energy accounts for a large part of the market.

“Thanks to the French model we have more independence,” he said, “and this is key: to be independent.”

COMMENTS/IMPACT: In the race to carbon neutrality, nuclear energy will be the more viable option as it is a more stable source of energy to attain the energy independence the union desires.

SENTIMENT

FX

STOCK INDICES

Phan Vee Leung
CIO & Founder, TrackRecord

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