New York, May 19 – The NASDAQ composite index was at 13,619 on April 19. On Wednesday, just a month later, this cheerleader of technology stood mauled — nearly 2,200 points down at 11,418. Over 16 per cent of investor wealth had vanished in a terrible April that seems to spill over.
After notching its worst month since 2008 in April, the tech-heavy index continues to deflate this month too, with many in danger of seeing their gains from the pandemic’s earlier phases, boosted by the remote-everything boom, getting wiped out.
The S&P500 was no exception. Sitting at 4,462 a month back, the index bled 12.65 per cent at 3,924 by Wednesday.
The Dow did better, but by just a tiny bit. From 34,911 a month back to 31,464 Wednesday, vaporisation was in single digits at 9.8 per cent. Still a scary thousand points.
Clearly, technology stocks — and big tech more than most — have hemorrhaged the most. That said, physical retail, the bellwether of an economy, hasn’t escaped a mauling.
The market could scent discouraging guidance from Walmart Inc., America’s largest retailer, and now Target.
The two stood lower by 22 per cent and 34 per cent respectively over the last 30 days. It looks like retailers are not as safe as many investors expected.
Walmart shareholders lost 17 per cent in just five days of hammering.
The company said the US customers are increasingly trading down to private-label goods amid sky-high inflation.
“Consumers are feeling inflation pressures as evidenced by an increase in grocery private-label penetration,” Brett Biggs, chief financial officer said on the earnings call. The jump in fuel prices, elevated labour costs and aggressive inventory levels weighed on, he said.
Biggs confessed that some merchandise arrived late and items, such as grills, plants and pool chemicals, didn’t sell due to “unseasonably cool weather in the US.”
Even employees returned from Covid leave quicker than expected. That caused Walmart to become overstaffed during part of the quarter.
John Furner, chief executive of Walmart U.S., said the move to private labels is happening across categories like “deli, lunch meat, bacon (and) dairy.”
Walmart Tuesday reported quarterly earnings that missed Wall Street’s expectations by a wide margin, owing to rising fuel costs and higher levels of inventory.
Shares touched a 52-week low — dropping 6.79 per cent further a day later.
Walmart is much-watched as investors and economists look for clues about how the US consumer is weathering inflation.
The results “were unexpected and reflect the unusual environment,” CEO Doug McMillon said in a release.
Inflation in the US is at a nearly four-decade high.
The consumer price index, a broad measure of prices for goods and services, increased 8.3 per cent in April compared with a year ago, the U.S. Bureau of Labor Statistics said.
Shares of Target dropped Wednesday after the company released its first-quarter report. The company reported revenue of $25.17 billion and adjusted earnings of $2.19 per share, missing analyst estimates on earnings.
Operating margin rate was just 5.3 per cent, “driven primarily by gross margin pressure reflecting actions to reduce excess inventory as well as higher freight and transportation costs.”
Traders were upset that Target failed to pass higher costs on to consumers.
Back to tech, there are reasons to believe that the worst isn’t over.
Between them, the five biggest tech companies have shed nearly $2.6 trillion — a decline of 26 per cent, twice the drop in the Dow.
Amazon is suffering an uncharacteristically severe adjustment after a massive spending binge. Meta, the former Facebook, hasn’t yet been able to reposition itself as a metaverse company. It has imposed a hiring freeze — the equivalent of shedding staff in tech parlance.
Big Tech’s premium to the rest of the market seems largely erased.
Valuations at ‘high-growth tech companies’ are stretched even more. Investors are groping for financial yardsticks with which they can judge them. Analysts are revisiting markers like profit before interest, taxes, depreciation and amortisation; and net earnings that exclude stock compensation costs.
Multiples of revenues were a favourite until the turn that set in last November. Revenue multiples are falling out of favour as investors wonder about sustainability against financial shock and economic downturn.
For the optimist, this shows room for declines, particularly since markets often overshoot on the way down as well as on the way up.
Zoom trades at less than six times this year’s expected sales, a far cry from 85 it peaked at in 2020.
Dara Khosrowshahi, chief executive of Uber, warned of a harsher financial climate it was time to ditch the company’s ebitda targets and become cash flow positive.
Uber has burnt nearly $18 billion since 2016.
Many tech companies, accustomed to cash in the good times, are still a long way from reaching the free cash flow milestone.
Handing out restricted stock to staff, meanwhile, has become a cash-free way for many companies to find talent in a red-hot tech labour market without hurting the measures of earnings Wall Street has paid most attention to.
Meanwhile, there are companies that have no profits on any measure and little in the way of sales.
This is making it all the harder for the market to find a bottom.
At 3.6 per cent, the US unemployment rate remains low, but growth has slowed markedly and the economy actually contracted in the first three months of 2022.
Apple kicked off 2022 by becoming the first company to be worth $3 trillion. But, despite reporting record earnings last quarter, share price has dropped more than 16 per cent.A
Microsoft’s shares have fallen 20 per cent, dragging valuation below the $2 trillion mark.
Amazon is down more than 37 per cent on the year.
Among FAANGM stocks, in April 2022 alone, Meta Platforms was down by 16 per cent, Amazon by 36 per cent, Apple fell by 16 per cent, Netflix fell by 55 per cent, Google fell by 18 per cent. and Microsoft fell by 15 per cent.
Cryptocurrencies, whose movements have paralleled the Nasdaq in recent months, have also slumped.
After a temporary Federal Reserve-induced boost last week carried it above $40,000, bitcoin was trading Wednesday at $29,796.
Ethereum, another popular cryptocurrency, tumbled 5.6 per cent in just the last five days.
“Market psychology is driven by greed and fear,” said Wayne Wicker, chief investment officer at MissionSquare Retirement. “The volatility in markets is driven by uncertainty in the future rate of inflation and the actions the Fed will take in its attempt to mute upward price increases.”
(Nikhila Natarajan tracks big tech and tweets @byniknat).