FNArena’s Weekly Insights – October 31 2022
In this week’s Weekly Insights:
-Technology’s Moment Of Truth
-Conviction Calls
-Research To Download
By Rudi Filapek-Vandyck, Editor FNArena
Technology’s Moment Of Truth
Big Tech on Wall Street has fallen off its pedestal in October with share price weakness following the release of Q3 financials.
For some, like Meta (formerly known as Facebook) the latest disappointment simply added more pain for loyal shareholders who have now witnessed the share price tanking by some -70% from last year’s peak.
While the consequences for the likes of Amazon, Apple, Alphabet (Google), Microsoft and Tesla have been less severe, they are making big headlines nevertheless and have started to sow the seeds of doubt among investors.
Maybe Big Tech is not immune from the global slowdown; might it pay the price for being over-owned by investors across the globe?
For investors in Australia, there are multiple important points of interest to consider.
The first is the observation that positive market sentiment will not be deterred – at least not by disappointments from individual companies, no matter how big their size or marketweight.
This could well turn out to be all-important (in the short-term) as market observers had formed doubts about the outlook for Big Tech and how markets might respond to upcoming “misses” and downgrades.
Even after recent sell-offs, the marketweight of the so-called FAANMG stocks still represents around 11% of the FTSE World Market cap, so it would not be much of a stretch to think where goes Big Tech, there follow global indices.
Apparently not so. Market sentiment post the general weakness in September is now firmly focused on central banks slowing down the pace of rate hikes – a global trend that started with the RBA pre-Melbourne Cup day meeting.
Previous rallies in US equities have run out of puff once the 50 or 60 days moving average or the 200DMA came in sight, so investors will be keeping a close watch on what happens next over the weeks ahead.
Currently, the 60DMA, while trending downwards, seems only another positive day away while the 200DMA, also trending south, is below 4100 for the S&P500.
Headaches building for the largest companies on earth also lends credence to forecasts for the Aussie share market to outperform international peers, in particular US indices.
If investors were to assume Big Tech’s marketweight is now reverting back to pre-pandemic level, this implies either Big Tech share prices must fall by a further -25% or other equities combined must outperform by some 33%, according to calculations published by Longview Economics.
Let us assume the actual outcome will be somewhere in the middle of those two scenarios. This still implies large US indices have a natural headwind to overcome, which the ASX200 doesn’t have.
