“There is an old saying that ‘markets ride the escalator up and take the elevator down’,” says Russ Mould of AJ Bell. Last year’s stockmarket gains were steady and serene, with “just 40 daily moves of more than 1% in the FTSE 100 from open to close, compared with 116 the year before”. But with central bankers about to remove monetary stimulus – investors’ “happy pills” – volatility has made a comeback.
Big tech disappoints
America’s S&P 500 and Nasdaq indices both suffered their worst weeks since March 2020 last week, says Ben Levisohn in Barron’s. The tech-heavy Nasdaq is down 15% since its November peak. The trouble started after pandemic winners Peloton and Netflix both issued disappointing trading updates, sending their shares down by 14% and 24% respectively. That has fed a broader sense that the big-tech boom is running out of steam. As Chris Senyek of Wolfe Research notes, the “combination of Fed tightening and some big earnings misses” was what ultimately popped the dotcom bubble in 2000.
The volatility continued into this week. The FTSE 100, which has largely avoided the sell-off, fell by 2.6% on Monday. The pan-European Stoxx 600 lost 3.8% for its worst day since June 2020 as tensions over Ukraine heightened the sense of gloom. The same day on Wall Street, the S&P 500 crashed 4% in the morning only to then rally and close the day with a small gain. Such extreme trading reversals are exceedingly rare. The CBOE Volatility index, dubbed the “fear gauge”, has jumped to its highest level in more than a year.
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The Nasdaq has retreated to the same levels it was at in June last year, says Bill Blain in the Evening Standard. That could be “the curtain-raiser to a more chaotic market collapse”. The sell-off in Peloton and Netflix is justified – “both are in highly competitive sectors” and will lose out from the end of the pandemic. The sign that something bigger is afoot is that even the likes of Apple and Microsoft, some of the “most profitable firms in the history of capitalism”, are tumbling. “The bubble pops when a collapse in weak stocks spreads as a contagion to strong stocks”.
Pandemic endgame
“Momentum is building against companies with exciting promises to reshape the world,” says Graeme Wearden in The Guardian. Tech stocks are heading for a “crunch fortnight” as its biggest names report their latest earnings. “They must prove they can thrive in a post-lockdown world where the cost-of-living squeeze is leaving people with less money for tech products and services.”
Big tech’s giant market rally has rested on two assumptions, says the Financial Times. “One was that lockdowns would permanently change how we live our lives,” the second was that interest rates would stay ultra-low “for the foreseeable future”. Both are now being brought into question. What’s bad for tech investors might be good for society: instead of betting on more bouts of lockdown misery, markets are ready to move on from the pandemic. “Those of us who prefer a busy social calendar to social distancing should be pleased.”
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