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Choppy October volatility sees a tech-driven selloff
The Big Story π₯
A selloff in Facebook stock and shares of other big technology companies rippled through the market, pushing major U.S. indexes to steep declines at the start of the week.
With major attention over at Facebook because of the whistleblower seeing Mark Zuckerberg's net wealth diminish $6B and putting him down to 5th place on the top billionaires list, a reminder to see Facebook in the general scheme of October volatility which goes beyond the Facebook story line.
We have also been reporting on a major 10-20% looming correction, and have started the month of October on the backfoot especially with a down September, which Bank of America says usually translates over to a worse October.
When September is down, the following month can see equities struggling again, and October shows an average decline of 0.41% historically speaking. Though September tends to be a seasonally choppy period, October can have bigger drawdowns based on the seasonality of intra-month moves say the bank.
The index declined for the fourth time in six sessions -- and the losses are getting more pronounced. The S&P has posted losses of more than 1% on all three of its most recent down days. That hasnβt happened since September 2020, when the index tumbled near 10%.
The SPX could continue holding, but the index will not see fresh highs for a moment as tech enters a period of underperformance potentially for the next couple of weeks. We saw an implosion of tech and a selling pressure creating knock-on effects elsewhere as investors de-risked and brought down their exposures.
Overnight Action π΄β
A global selloff in equities continues in Asia on Tuesday amid concerns that rising prices for raw materials like crude oil will stoke inflation and erode economic momentum. The MSCI Asia Pacific shares index fell as much as 1.7% before paring some losses.
Global markets dropped as investors confronted fresh concerns about the health of China's property sector and tech-driven selloff in US shares. US stock futures crept higher with futures tied to the Nasdaq gaining 0.1% to 0.4% which suggests that US markets could regain some ground in today's trading session.
The S&P 500 fell 1.3% at closing coughing up last Friday's rebound rally, amid noticeable weakness in mega-cap stocks. The Nasdaq was disproportionately touched with a 2.1% decline.
Concerns about growth and surging energy prices, as well as higher bond yields, are attracting investors to the greenback. But a strong dollar has the potential to hold back gains in stocks and other assets.
Major indices except for the Nasdaq started the session little changed, but it didn't take long for mega-cap losses to trickle over the broader market. The disappointing price action extended a recent trend of selling into strength amid unresolved issues on infrastructure, the debt ceiling, supply chain logistics and raw material inflation.
Concerns about China's property companies which have been fanned in recent weeks by financial strains at Evergrande were rekindled by smaller rival Fantasia which said later yesterday it had failed to repay maturing dollar bonds. In bond markets, the yield rose to 1.488% up from the day prior.
Facebook was the biggest loser because of the claims from a whistleblower said the firm put profits before safety and people. Semiconductors were also weak amid some experts saying the shortage could rally well into 2022. Tesla was protected from solid sales from this mega-cap selloff.
In Washington, the House will delay its vote on the $1 trillion bipartisan infrastructure bill until a deal is reached on the larger reconciliation package with Biden suggesting the latter could be cut down some more from $3.5 trillion.
Top 5 Moves ππ°
1. OPEC opts against output increase, US oil hits 7-year high
OPEC and a Russia-led group of oil producers agreed to keep rising production of oil but in measured steps. They decided against opening the taps more widely, and driving U.S. crude prices to their highest levels since 2014. West Texas Intermediate, the main U.S. oil price, rose 2.3% to close at $77.62 a barrel. Brent, the international gauge, added 2.5% to end at $81.26. Climbing oil prices recently had analysts and economists expecting OPEC and its Russia-led allies to lift production more significantly, but no, OPEC+ said it would lift its collective output by 400,000 barrels a day in monthly installments instead.
2. Facebook's worse ever day? First the Whistleblower issue raised awareness from the world about Facebook's internal practices sending the stock into a frenzied sell-off and then, its services went offline for as much as 6 hours before the extended outage came to a stall. WhatsApp, Instagram, and Facebook Messenger did not work, and people had to turn to alternative solutions to communicate. For some smaller businesses this was a major problem with operations and revenues curtailed.
3. California oil spill halves Amplify Energy's stock value Shares of Amplify Energy Corp. (-43.83%) lost nearly half their value after a major oil spill at the companyβs platform off the coast of Orange County made its way over to nearby beaches. Amplify, a Houston-based oil and natural-gas company, said it has shut down all of its production and pipeline operations in the area as a precautionary measure, adding that it has sent a remotely operated vehicle to investigate and attempt to confirm the source of the release.
4. Chinese developer Fantasia fails to make debt payments
Another Chinese homebuilder has hit financial trouble after it missed payments on debt obligations, adding to worries over the country's property sector as embattled giant China Evergrande teeters on the brink of collapse. Fears of contagion through the Chinese economy have grown as Evergrande, the most indebted of the country's private homebuilders, struggles with more than $300 billion in liabilities and heads towards a massive restructuring. Fantasia Holdings failed to repay a $205.7 million note Monday, the Shenzhen-based company said in a statement.
5. Mining stocks may not be in the green for some time It might be too early to buy mining stocks despite their recent correction, as the outlook for commodity demand has deteriorated and prices could keep falling some more over the coming 12 months. Mining stocks rarely go up or outperform in a falling commodity price environment regardless of what is ''priced in''. However, mining companies are well positioned to get through downturns in commodity prices, with balance sheets strong and capital expenditure relatively low still. Even with a recent pullback that may have unearthed long-term value in certain stocks, being underweight on the mining sector might be wise. Such stocks see ''sell'' or ''neutral'' ratings.
Crypto Outlet π³
Bitcoin is at $49,165 no. ETH is at $3,366.
Bitcoin is stronger now that it has been banned from China, according to Edward Snowden. He points out that despite government's move to regulate it, the crypto remains somewhat resilient. It is up 10x since March 2020 after all.
Now valued at $4.3 billion, the NFT platform Sorare wants to invest in women's sports, and strongly that NFTs will be able to accelerate its development.
El Salvador introduced a fuel subsidy of $0.20 per gallon for any locals paying with bitcoins. A positive news for Salvadorans, and a strong incentive to use crypto.
Indiaβs market grew 641% over the past year and Pakistanβs 711%, a report from Chainalysis showed, using a metric that estimates the total cryptocurrency received by a country.
What are the expected IPOs of the next two quarters?
The graph below shows the new listings by sector. Tech is yet again far ahead, with Strip fetching an expected $100 billion valuation. Rivian is the second line at a $80 billion valuation.
@Yahoo Finance
Bitcoin's jump to 48k changed its technical setup;
Rising risks to Chinese growth threatens short-term equities outlook
It seems as though buying the dip has been the name of the game, with China being the surprising exception, at least for the short run. Is there a value rotation at play?
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