Tech Downturn Advances, With Apple, Tesla Coming Under Early Pressure

You can observe a lot by watching, according to baseball great Yogi Berra. Well, we’ve started to observe a little more caution creeping into the market. 

It’s arguably there in bonds, where the 10-year yield continues to pivot around 1.6%, well off its March high and not getting much traction. 

It’s also evident in the Nasdaq (COMP) and Russell 2000 (RUT), both of which can’t seem to find a pathway upward. Tech shares slid again early Tuesday in pre-market trading, with “FAANG” names like Apple AAPL and Tesla TSLA again taking it on the chin. Palantir Technologies, Inc. PLTR fell double-digits after reporting earnings, with analysts pointing to higher than expected compensation costs. 

Even though the COMP—heavily weighted toward Tech—is just 3% from all-time highs, when it ran into struggles last month it may have made some investors feel more cautious about being “all in” to stocks. We’re starting to see more interest in fixed income than earlier this year. 

Caution is also evident in the latest batch of retail investor data for April (see more below), which showed a slight pullback. 

Also, gold is up to well above $1,800 an ounce—a three-month high. It’s climbed about 10% from its 2021 lows.

One possible issue is a lack of catalysts. The big tug-of-war between growth and value continues to play out, with value winning yesterday’s battle in a huge way. Other than that, there’s not much of a story to trade on. 

Some had anticipated a strong April jobs report and thought that might provide a new storyline—namely a change in the Fed’s thinking on tapering monetary support. 

Instead we got a lackluster jobs number that kind of pushed that debate back another month, and the monetary “party” continues. Wage pressure was capped because of the jobs growth being concentrated in the leisure and hospitality sectors, something that might continue. That takes inflationary pressure off the Fed, to some extent. 

Tech laid an egg yesterday as stocks like Facebook FB and Tesla TSLA got creamed, but it’s possible some people will continue to view dips as a buying opportunity. It’s like in football. If a play keeps working, you keep running it. Running the “buy the dip” route in Tech has probably made some people a lot of money over the last year. At some point it will end, absolutely, but no one knows when that will happen. 

Some Investors Stepped Back In April

The April Investor Movement Index® (IMXSM) from TD Ameritrade showed clients tracked by the report reducing their exposure to stocks just slightly during the month. It was the first time that happened since last November. The headline number fell to 8.14 in April, down from its March score of 8.21. It’s still historically high, by the way.

The IMX is TD Ameritrade’s proprietary, behavior-based index, aggregating Main Street investor positions and activity to measure what investors actually were doing and how they were positioned in the markets. 

Checking the data, remember that despite an incredibly strong Q1 earnings season and all three major indices reaching record highs, stocks mostly treaded water in late April. Many clients apparently used last month to rebalance their portfolio, selling some names that reached historic peaks and buying some names they might believe will do well in the reopening trade.

While economic and earnings data have been looking positive, there remain some lingering concerns, including inflation. The question remains if the recent flow of positive earnings reports will give us another ‘leg up’ in the market or if inflation or other concerns will end this quiet period and lead to increased volatility. 

In April, TD Ameritrade clients were net buyers overall. Some of the popular stocks bought during the period were Walt Disney DIS, Viacom VIAC, Advanced Micro Devices AMD, QuantumScape QS, and Palantir PLTR.

TD Ameritrade clients did find some names to sell on strength during the period, including Johnson & Johnson JNJ, Wells Fargo WFC, Pfizer PFE, United Parcel Service UPS, and Nvidia NVDA. 

What’s interesting is that clients’ exposure remained about flat in April even as the S&P 500 Index (SPX) rose 5%. There were people who sold stocks last month and actually put some of the money into fixed income. Maybe with the COMP near all-time highs and struggling a bit, there’s more caution. 

Monday To Forget In Tech

Speaking of selling, the FAANGs and chips saw a lot of it on Monday, and that helped send the Nasdaq (COMP) down more than 2.5%. A lot of analysts sound like they’ve turned bearish on internet ad buying, which hurts stocks like Alphabet GOOGL and Facebook FB. The exception to the bearish analysis was Roku ROKU, which got an upgrade. It didn’t appear to help the stock much yesterday, however. 

Companies like Apple AAPL, Microsoft MSFT, and Tesla TSLA have basically gotten no traction despite their strong earnings. Over the long term, this isn’t necessarily a bad thing by any stretch of the imagination. They’ve all come a long way over the last year and it makes sense that at some point the craziness just had to slow down.

Both the Tech sector and small-cap stocks just haven’t really gone much of anywhere over the last month, and that might be damping some of the overall enthusiasm on Wall Street. If you’re a long-term investor, it’s times like these when you don’t need to necessarily obsess over every daily move in your portfolio. Major indices are near all-time highs and have come a long way. There can’t be new fireworks every day, or every month for that matter.

CHART OF THE DAY: TECH BREAK. Futures on the Technology-laden Nasdaq-100 Index (/NQ—candlestick) finished Monday right at the 50-day moving average (blue line), but blew through it in the overnight hours. But considering many of the top tech names have been on quite a run this past year, a bit of a pullback in /NQ might not be too surprising. Note there’s still plenty of real estate between this morning’s breach of the 50-day moving average and a test of the 200-day moving average (purple line), currently at 12447. Data source: Nasdaq.   Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.  

Inflation Watch Intensifies: Some key April data is now straight ahead on the inflation front. Tomorrow’s Consumer Price Index (CPI) and Thursday’s Producer Price Index (PPI) might be the hottest tickets since Disneyland reopened. Just about everyone on Wall Street is eager to see if reports of inflation from many companies this earnings season started to show up in the numbers.

A couple caveats to keep in perspective heading in. First, one month is not a trend. We could see something in April and not see it repeat in May. Every economic number is a snapshot in time. Second, as the Fed has been warning for what feels like months, the comparisons are against April 2020 when lockdowns were in full force. In other words, the year-over-year numbers might look a bit alarming until you put them into context.

Now that you’ve been warned, analysts say they expect tomorrow’s CPI to show a benign 0.2% rise month over month, according to Wall Street consensus compiled by Briefing.com. That’s actually down from 0.6% in March. Core CPI is seen a little bit higher at 0.3%, which is even with the March gain. Last time out, Energy price increases led the gains in headline CPI, and with gas prices up substantially over the last month, it’s possible we could see a repeat of that.

Headache In The Oil Market? Crude had been bumping its head against $65 a barrel most of the last two months, and that level remains one it just can’t seem to move above for more than a day or two. The ransomware attack on a huge U.S. pipeline sent gasoline futures sharply higher on Monday, and gas prices already average $2.98, according to the government. We’re also closing in on the U.S. “driving season” even as travel companies report far more demand and rental car prices go through the roof. Airfares still seem reasonable, but let’s wait and see.

One thing that could help crude this summer is more large firms now encouraging or even requiring employees to be back at least some days of the week. There was a rise in daycare hiring last month, the Labor Department said, perhaps a sign of parents returning to the office. Anything close to $70 could raise concerns for major transport companies like truckers and airlines. However, transports continue setting record highs as the economy reopens and the pipeline shutdown limits supplies on the East Coast. Overall, crude didn’t show as much reaction to that as some people thought it would, maybe because it looks like things will return to normal soon. We’re still a bit below the 52-week high near $68.

Business Or Pleasure? Hotel and resort giant Marriott MAR had a lot of good news in its earnings report yesterday, mainly that occupancies were strong in March and “demand improved meaningfully,” according to their CEO. The company sees signs of improvement in business-related travel, especially in China where MAR hosted more business travelers in March than it did in March 2019 before the pandemic.

One argument against companies like MAR is that while vacation travel—especially to resorts where social distancing is more easy—may be on the rise, business travel may have a lot more trouble returning to where it was. There are just so many other options people have found for meetings when they were forced to stay home. The company is seeing more mixed travel itineraries, where people combine business trips with leisure. Is that the wave of the future? If so, it’s still kind of mixed news for hotels and airlines, especially ones like Delta DAL that depended so heavily on business travelers.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Image Sourced from Pixabay