The week that was

Markets slid again last week but the selling was concentrated in US tech, most of which is down 10% or so this year. Much of last week’s selling occurred in the last 2 sessions of the week. However, it was the pattern of trading that was just as worrying for many observers with some fairly pronounced intra-day swings on Thursday and Friday that ended with the market selling off dramatically into the close. On Friday the proximate cause was Netflix which reported weaker subscriber numbers and a pessimistic outlook which was seen by some as a potential crack in the pristine earnings and cash flow credentials of the broader US tech sector. In a winner takes all, platform driven digital economy, these have been seen as safe havens while many smaller, less profitable tech and biotech stocks have already halved in value during 2021. 15-20 of these tech titans represent a 1/3rd of the US market and over 2/3rds of the Nasdaq, so this reversal has happened very much below the surface, until this year. Investors appreciate and pay a hefty multiple for the ‘bird in the hand’ of massive current cash flows plus strong growth prospects. Higher interest rate expectations are turning from a tailwind into a headwind and now cracks in the growth story are adding to the markets doubts. Regulatory curbs, although not on the scale of those in China, have also been gaining bipartisan and cross-country support in recent weeks.

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