Tuesday proved another bleak day in what is quickly becoming an annus horribilis for speculative tech.
The rot, of course, started in February 2021 but really took hold last November when a hawkish about-face by the US Federal Reserve dragged down stock markets, which had been in shambles since the early days of the pandemic. This year’s subsequent sell-off hit the riskiest companies particularly hard.
Tuesday brought more doom and gloom, with the Nasdaq Composite already posting its biggest one-day decline since September 2020 Alphabet’s disappointing results after hours. Futures tracking the tech-heavy index are up modestly at pixel time, but few expect the respite to last. When a company like Google sneezes, the entire tech world usually takes a few days in bed drugged with Lemsip.
Goldman Sachs’ nonprofit technology index, meanwhile, has slipped more than a third since early January and weathered another hot session on Tuesday, falling more than 5 percent.
Cathie Wood’s ARK fund fared even worse — falling 6.8 percent on the day to $50.68, down almost 50 percent year-to-date — despite Wood himself speaking at a crypto conference in the Bahamas (where otherwise? ):
— Amy Wu (@amytongwu) April 27, 2022
What exactly triggered yesterday’s market decline is unclear. “We’re not dealing with fear,” said Mike Zigmont, head of trading and research at Harvest Volatility Management, “we’re dealing with accepting pessimism.”
“I think most longs sentimentally throw in the towel,” Zigmont added. “Higher future rates seem like an impossible obstacle and earnings season is not proving to be a magic bullet.”
The magnitude of Tuesday’s sell-off underscores just how nervous some growth-oriented investors have suddenly become. Retail investors who once enjoyed dip buying are “increasingly hedging against downside risk by shorting tech and volatility proxies rather than buying traditional safe havens,” according to data provider VandaTrack.
Not even Tesla got off scot-free: Shares in the electric car maker yesterday dropped 12 percent to $876 on fears our Elon may have to reallocate some of its shares to fund the $21 billion in equity needed to fund its purchase of rage-as-a-service company Twitter are. In terms of market cap, that drop was about $125 billion, or about two Fords.
Stocks, which soared in the first year of the pandemic, were also hit. Peloton fell 6.8 percent
gambling Trading apps Robinhood and Coinbase lost 3.7 percent and 5.9 percent, respectively.
However, there is one movement that deserves further attention. $12 billion used-car dealer Carvana — whose largest shareholders include Tiger Global, Baillie Gifford and T Rowe Price — fell 13 percent to $70.
Apparently, this wasn’t just because the specification technology got rect. Moody’s on Monday demoted Carvana’s credit rating on Caa1. The reasons given are not nice to read:
The downgrade reflects Carvana’s very weak credit metrics, continued lack of profitability and negative free cash flow generation, which we expect to continue as the Company continues to build out, adequately staff and expand acquired locations and existing locations until they are cash flow positive on a sustainable basis. The downgrade also reflects governance considerations, most notably Carvana’s financial policy, which supports the continuation of its external floor plan facilities despite expectations of significant negative free cash flow, and its decision to partially leverage the ADESA acquisition despite its very high level of debt.
That might not be a problem if Carvana wasn’t in the process of raising capital. Following weak results Last week, the company announced that it plans to raise $4.3 billion, including $2 billion ordinary and preferred stockwith the balance formed by $2.3 billion in unsecured debt obligations. The latter is to finance the purchase of the car auction company Adesa, which was announced in February.
Here’s the catch: Late Tuesday, Bloomberg reported that JPMorgan was struggling to find buyers for the bonds, even though the securities are offering a whopping 10.5 percent yield.
We’re just spitting here, but that could have something to do with the fact that it’s worth $750m in bonds or that it posted negative ebitda of $326m over the last 12 months despite an unprecedented surge in used car prices. Or like the WSJ reported Decemberthat the company has rather tortuous business ties with the family of its founder, Ernie Garcia III.
Just another day in crazy markets, right?
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