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We are currently seeing a big disconnect between technology stocks and the rest of the market. Last night the broader S&P 500 closed down half a percent while the tech heavy Nasdaq was up half a percent, for a 1% difference. So far this year the Nasdaq is up 17% while the S&P is down 2.5%. That is a massive performance gap.
What does this mean? Some people think it's merely history repeating itself, with a Dot-Com bubble blowing up which will burst like that one did back in 2001. Personally (Byron here) I think that is absolutely ridiculous and just lazy thinking. The world could not be more different now, compared to back then. 20 years ago the internet was still very new, an amazing concept but very difficult to monetise or understand. Today we are living through a global pandemic which is forcing us to do much more stuff online, and we have established internet companies that are making billions and billions of dollars. Not at all like 1999-2000, in my opinion.
As Eddy Elfenbein points out in his weekly update on the Crossing Wall Street blog, the rise in tech stocks now represents a flight to safety. Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN) are the blue-chip utilities of our time. They are the cash-rich safe havens with billions of dollars in the bank. We own all of those stocks in Vestact New York portfolios and hope to continue to do so for a very long time.
Yesterday the JSE All-share closed down 0.15%, the S&P 500 closed down 0.56%, and the Nasdaq closed up 0.53%.
One thing, from Paul
Dear reader, there is big stuff going on in China. Of course, that statement has been true for a long time. The world's second most important nation has been growing at a breakneck speed in recent decades, and its leadership fancies itself as the emerging superpower which will one day overtake the US.
Two articles have got me thinking more about this topic in recent days. John Authers at Bloomberg Opinion writes that China's Economic Dragon Is Spitting Fire Again. Since its brush with Covid-19, the Chinese economy has been growing strongly.
As Michael noted yesterday, the last week has seen the domestic Chinese stock market enjoy the strongest five-day performance in more than five years. Credit extension is rising again and commodity prices have been firming. China will report second quarter GDP next week and analysts estimate that their economy grew at a rate of 3% year-over-year, after shrinking 6.8% in the first quarter. We shall see how the numbers come in.
Felix Salmon at Axios had another opinion piece out last night discussing the way in which China is flexing its muscles by passing laws that have global reach. Calling for the independence of Hong Kong is a now crime all over the planet. That seems ridiculous, but keep in mind that the US has been doing that sort of thing for decades. Felix calls it "extraterritorial power mongering". China's extraterritorial threat. He notes ominously that China's decision to tear up the Sino-British Joint Declaration and Hong Kong's Basic Law comes from a position of strength.
Byron's Beats
According to The Verge Sony has bought a $250 million stake in Epic Games. Remember that Epic Games own the incredibly popular game Fortnite, which took virtual entertainment to a new level during lockdown with digital concerts and events.
This deal is interesting because it gives Epic Games an effective valuation of $17.9 billion. According to Bloomberg, Tencent (HK:0700) bought 40% of Epic Games at a valuation of $825 million in 2012. Assuming no dilution, that Tencent stake is now worth $7.14 billion. Nearly a 10 bagger in 8 years! I have no doubt that the deal with Tencent gave Epic Games an amazing platform to showcase their games. It has been a great partnership for both parties.
The founder of Epic Games is Tim Sweeney, pictured below. He is now worth $4.5 billion according to Forbes.
Bright's Banter
After massive pushback from the Stop Hate For Profit campaign, Facebook (NASDAQ:FB) has decided to remove a lot of pages on its platform including some linked to Brazilian President Jair Bolsonaro and his sons.
Mark Zuckerberg and his team must have decided to finally come to the party, purged inauthentic accounts that work to mislead users. In the Brazilian case, Facebook said it identified a network of accounts linked to employees of Bolsonaro who created fictitious accounts posing as reporters, and basically sowing confusion and peddling propaganda.
This is a step in the right direction. However, I feel that instead of targeting just 73 Facebook and Instagram accounts in this isolated incident, the cybersecurity team at Facebook should deal with conspiracy theorists, anti semitism, racism, and anyone who spreads hate more decisively. Facebook also took down accounts tied to Roger Stone, a Trump ally.
Signing off
The weekly US jobless claims report out yesterday showing that 1.31 million persons signed up for unemployment benefits, which was slightly less than consensus (that's a good thing). Markets are still watching the daily virus data closely, especially the gap between infections and deaths in the US. The Rand is holding strong below the 17 level. Next week is a big one, as US earnings season get started. As usual, the big US banks will be the first to report. These earnings will reveal the details of second quarter business conditions, a period which was squarely within the lockdown. We will also get guidance from companies about trading conditions in the third quarter, so far. We will need to be on our toes. Keep warm and get some extra sleep this weekend!
