Business

Growth stock stars of pandemic tumble into bear market

High-growth technology stocks that sparkled in the corona crisis have entered a bear market as consumer habits change and the prospect of sharp interest rate hikes in the US are forcing investors to exit one of the most profitable deals of recent years.

The MSCI World Growth Index, which tracks stocks with high earnings and sales growth, and includes names like Amazon, Tesla and Nvidia, fell this week to 22% below the November high. This decline has left it in a technical bear market, defined as a drop of 20% or more from the recent high. Aside from a brief drop in March 2020, it symbolizes the biggest fall from a peak to a low since the financial crisis.

April was particularly cruel. The Growth Index this month released one of its worst performances in at least 20 years, with the technology-focused Nasdaq Composite fall 4 percent on Tuesday only.

With US inflation Runs at 8.5 percent And the Federal Reserve is expected to raise interest rates by more than 2.25 percentage points by the end of the year, with some traders now believing that the good conditions underlying an up to 250% rise in the growth index over the past decade have changed. For good. Some argue that the days of huge gains from buying speculative stocks with an attractive growth story but few current gains may end.

“Now it turns out people have more to invest than to divide capital like lollipops on a school night for anyone with an idea to fly carbon-free taxis or hot dogs,” said Barry Norris, chief investment officer at Argonaut Capital.

“Every time a sale took place in the markets, a central bank was introduced,” he said, comparing monetary incentive packages to options that protect against market falls. “The central banks will not come to the rescue this time.”

Among the major casualties this year were Cathie Wood’s Ark Innovation fund, the poster-child of investments in growth companies, which owns stocks like Coinbase, Block and Spotify, and which fell 48% this year to April 28th. Scottish Mortgage Trust. , Known for its bold bets on technology groups, has dropped 34%. The so-called number “Tiger puppyHedge funds, created from Julian Robertson’s Tiger Management and often by large investors in technology stocks, were also Strong blow in the previous months.

The Goldman Sachs’ index of unprofitable technology stocks, which peaked early last year, fell 39 percent this year.

During a bullish market that sometimes seems endless, growth stocks have regularly outperformed cheap stocks, so-called value. Investors who persevered or bought during the market retreat, particularly the plague of March 2020, were richly rewarded as central banks flowed incentives, pushing stocks to even higher highs.

But the prospect of rising interest rates has hurt low-profit, high-growth technology stocks because the future cash flows of these companies look relatively less attractive. Meanwhile, rising inflation is limiting the ability of central banks to respond to crises, just as The fears are growing On the health of the Chinese economy.

Some investors seem reluctant to let go, despite the rapid decline in U.S. government bond prices. Brian Boost, co-head of Stock Derivatives in the American continent at Barclays, said growth stocks remained popular with investors, despite the recent sale, with some fund managers still denying it.

“The fact is [growth stocks] “Still trading at very high multiples,” he said. “If something goes down by 50 percent, it’s natural psychology that it’s really hard to sell a loser. But I think there is more pain to come. “

Some stars of the bull market are now feeling the heat. Cabinet wood, for example, I have written On Twitter this week, the rising US dollar “suggests that the Fed’s policy is already too restrictive,” even though the Fed’s fund rate is still in the target range of 0.50%.

Some hedge fund managers are preparing for a more difficult period. Luke Ellis, CEO of Man Group worth $ 151 billion, told the Financial Times last month that he expects a “difficult year for stocks”, while Sir Michael Hinz, founder of CQS, gambled against unprofitable technology stocks, according to investor records seen on By the FT.

“This is a new regime for the markets. It will be more difficult to make money for traditional investors,” said Michelle Jowaldi, founder of Infinity Investment Partners London.

Hedge funds are adjusting to the more difficult forecast. U.S. hedge funds, for example, operate net positions – the balance of bets on rising prices less betting on falling prices – close to their lowest levels in five years, according to Morgan Stanley to Prime Brokerage clients.

And while some investors have used the market sale following Russia’s invasion of Ukraine as a buying opportunity, Lansdown Partners, one of London’s largest hedge funds, said it was “confused” by this reaction.

“We feel this is a profound mistake,” read an investor letter seen by the FT, adding that “the market dynamics of the last 12 years since [global financial crisis] We have changed fundamentally. “

laurence.fletcher@ft.com



Growth stock stars of pandemic tumble into bear market Source link Growth stock stars of pandemic tumble into bear market

Related Articles

Back to top button