Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Investment Strategist
Crowdstrike, the second most valuable cyber security company in the world, reported Q4 earnings yesterday after the US market close. Here are the key take-aways:
As the chart below shows, CrowdStrike has outperformed the general cyber security industry over the past five years and especially since the technology rally started in early 2023.
We are still positive on the cyber security industry long-term as it will enjoy a lot of tailwind from geopolitical risks and increased digitalization. Besides CrowdStrike here are some other cyber security instruments to consider:
As we wrote last week, US equities ended February on a strong note taking US equities to valuation levels not seen since the 2021 technology bubble and the dot-com bubble in 2000.
This month has so far been different for US equities and the last two days cracks have emerged in among the Magnificent Seven stocks (see table). The group is down 2.4% in the past trading days compared to the S&P 500 down 1.1%. The worst performers have been Apple and Tesla.
Apple is suffering from weak iPhone sales (estimated China iPhone sales year-to-date is -24%) and big uncertainties about the next big category as the company shut down its EV project after 10 years of investments and the Vision Pro still has to show that it is a game changer. In addition, the EU two days ago fined Apple €1.8bn over abusive app store rules.
No real news has hit Tesla making the decline even more worrisome, but it seems retail investors that have previously pushed Tesla higher are more interested in AI stocks these days. This combined with intense competition and lower prices in EV are putting pressure on Tesla’s profitability.
If volatility comes to life and investors are taking gains in their technology stocks then investors might consider other trades to be shielded from higher volatility such as:
As with any definition we can just change it if we want. The idea behind the Magnificent Seven was born because those seven stocks delivered the vast majority of gains in the US equity market. As Tesla has declined a lot in market value this year, 27% to be precise, one could argue that Tesla should not be part of the group any longer and that it should be renamed to the Magnificent Six being Microsoft, Apple, Nvidia, Amazon, Meta, and Alphabet (Google). Tesla’s weight in the S&P 500 is now less than half of the smallest stock in Magnificent Six which is Meta. Unless Tesla gets back on track it will not make sense to keep the stock in this group.