It is getting serious in equities
We have flagged for over a week on our daily podcast that things were crumbling underneath equities with massive moves in currencies across USD, JPY, and CNY responding to the worsening situation out of China with its Covid lockdowns. DSV’s CEO said this morning in relation to Q1 earnings that the logistics company had never seen anything like what they are seeing in China with around 500 container ships waiting for docking in Shanghai ports. The war in Ukraine and Russia cutting gas to Poland and Bulgaria are raising the stakes in Europe which is already under pressure from an unprecedented cost of living crisis which is increasing the risks of recession in Europe. At the same time the market is pricing in a more aggressive Fed as more and more signs are suggesting that inflation is not transitory but stickier at a higher level than imagined.
The full effect of all of the above was channeled into US equities in yesterday’s session with Nasdaq 100 futures declining as much as 5.5% dropping below the 13,000 level before bouncing back and close above 13,000 and the rebound trade is extending in early European trading hours. Some of the broader equity indices are masking the carnage that is happening below the tier 1 companies (high quality and high margin businesses) with 37 stocks with a market value above $5bn being down more than 50% this year. Many of the names are recognized as the winners during the pandemic but frothy expectations are being prices out completely in these stocks reminding us of the collapse after the dot-com bubble. Our theme basket performance this year is also showing the long tail of losses in growth segments of the equity market. It is a good opportunity to remind investors what works during inflation which are real estate, commodities, gold, defence, cyber security etc.