Head of Equity Strategy
Summary: E-commerce stocks are down 66% over the past year having shredded almost all of their gains during the first phase of the pandemic. In hindsight it looks like e-commerce was in a bubble driven by a massive shift in spending from services to goods while interest rates plunged to record lows fueling equity valuations to astronomical levels. The UK-based e-commerce company Asos confirmed today that the outlook is deteriorating for fashion e-commerce due to the worsening cost-of-living crisis.
Was e-commerce a bubble?
When we look across our theme baskets we observe a sea of losses this year. Crypto is naturally the biggest casualty in “the great reset”, but e-commerce is the second biggest loser down 52% year-to-date and down 66% over the past year. E-commerce was initially hit by the pandemic as everything stopped, but then the world came roaring back causing e-commerce stocks to surge like crazy. In the second phase logistics cost went vertical and supply chains could disrupted to a degree that began to eat into profits of e-commerce businesses which was visible in Q1 with Amazon making an operating loss in its e-commerce business. The next phase hitting e-commerce is the cost-of-living crisis, created by terribly high energy and food inflation, reducing demand for discretionary items. When we look at the performance 2016 in our e-commerce basket it looks as if the entire industry went into a bubble caused by pandemic.
Today we got more evidence of these negative dynamics as Asos, a big fashion e-commerce business, is cutting its fiscal year revenue and pre-tax profit outlook driven by higher order returns and cost pressures across logistics and supply chains. The pre-tax profit guidance is now £20-60mn down from previously £100-130mn. Revenue growth is lowered to 4-7% excluding Russia down from 11-13%. If the world economy is slipping into a recession then the cut to its revenue outlook might not be enough. Shares are down 26% today dipping below the lows from during the pandemic low in March 2020. The stock is now down 89% from the peak in March 2018.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
