Why American tech stocks are newly vulnerable
As the panic fades, investors' nerves are still jangling. For the time being, stockmarkets have stopped convulsing and the prices of American Treasury bonds are no longer in freefall. Yet share indices across America, Asia and Europe have hardly recovered their poise (see chart 1); instead, day-to-day drops of a percentage point or more have become unremarkable. The VIX index—Wall Street's 'fear gauge', which measures expected volatility using the market price of insurance against it—has fallen from its nerve-shredding peak reached a fortnight ago. It is nevertheless at a level last seen in 2022, amid a grinding bear market (see chart 2). The price of gold has been breaking record after record. Investors, in other words, are offloading risk wherever they can and preparing for a drawn-out slump.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
4 days ago
- Reuters
Take Five: It's TACO time
June 6 (Reuters) - Uncertainty from Washington's tariff tactics remains rife, but investors realise that whatever U.S. President Donald Trump threatens doesn't tend to last long before he delays or backs down, meaning recent volatility has ebbed. This tendency to U-turn, dubbed the TACO trade - "Trump Always Chickens Out" - has caught on but it's also given investors something to bank on so they can focus on upcoming reads on inflation and trade. Here's a look at what's coming up for world markets from Kevin Buckland in Tokyo, Naomi Rovnick and Amanda Cooper in London and Alden Bentley in New York. The high-voltage volatility that shook markets in April and through May has subsided, with investors becoming accustomed to Trump's on-again-off-again approach to anything from tariffs to personal relationships - the meltdown with erstwhile DOGE chief and Tesla Chief Executive Elon Musk being the latest. Wall Street's fear-gauge, the VIX index, has slipped back below the 20-line that many view as a watermark. Since Trump became the 47th president on January 20, the index has topped 20 on 47 occasions. In the five months prior to that, it breached that level 18 times. In the last month, there have been just seven days when the VIX has popped above 20, compared with every day from April 2 "Liberation Day" to early May. If anything, the TACO trade is taking some spice out of the market. Investors are hoping any rise in Wednesday's May consumer inflation report won't be as severe as feared, given Trump's erratic trade tactics. Recent data shows inflation falling close to the Federal Reserve's 2% target. Price pressures in manufacturing and services sectors are picking up, however. A good gauge of markets' long-term inflation view indicates only moderate concern. The inflation breakeven rate on five-year Treasury Inflation Protected Securities suggests investors believe the rate will average less than 0.3 percentage points above the target for the next five years. The Fed's most recent Beige Book showed economic activity is weakening, while costs and prices are rising across the different regions - a combination policymakers do not want to see. Traders expect the Fed to make no rate change at its June 18 meeting. Washington and Beijing's trade spat has brought a familiar issue back to the surface. China has a stranglehold on global supply of so-called rare earths, critical ingredients in almost every high-tech device out there, from cars to cruise missiles. When China cuts off supply, everything withers. The auto industry is feeling it. Suzuki (7269.T), opens new tab suspended production of the Swift subcompact, weeks after Ford (F.N), opens new tab did the same for its Explorer SUV. The White House has blasted Beijing for reneging on tariff rollbacks agreed in Geneva last month, but China is doing the same, lambasting the U.S. over revoked student visas and cutting-edge chip curbs. Chinese trade data on Monday will illuminate what's at stake, while inflation figures that day will show if Beijing's efforts to stoke domestic demand are working. April data trade data for the European Union on June 13 could offer a reasonably clean read on where things stood as Trump's on-off tariffs began to roll out. The EU is firmly in the U.S. president's crosshairs. Trump has said more than once the sole purpose of the EU is to "take advantage" of America, on the grounds that his country boasts a $200 billion trade deficit with the bloc in goods alone, making the EU its second-biggest goods trade partner behind China. EU sales of cars, steel, pharmaceuticals and luxury goods and apparel among other things are big business. Trump on May 23 said he would impose a 50% tariff on all EU imports, only to back down two days later by delaying the duties by a month after a "very nice call" with European Commission President Ursula von der Leyen. Britain, often a prime target for bond vigilantes that attack indebted governments for financial mismanagement, has been pushed into these traders' peripheral vision by U.S. budget concerns. The Labour government's first spending review on Wednesday could bring the UK back into the spotlight. Even if finance minister Rachel Reeves manages to slash departmental spending, this will merely highlight how few cost-cutting options she has left, Bank of America says. UK public debt has swelled, leaving Reeves minimal headroom to avoid breaking self-imposed fiscal rules and less able to resist tax hikes. Still, businesses and borrowers still scarred by the gilt market riot after then Prime Minister Liz Truss' 2022 mini-budget may prefer higher taxes if that lowers the odds of bond vigilantes showing up.
Reuters
19-05-2025
- Reuters
Undimmed US 'exceptionalism' seems improbable
LONDON, May 19 (Reuters) - With heads still spinning from Wall Street's 180 degree turn over the past six weeks, investors are skeptical over still 'exceptional' U.S. stock market valuations that have barely flinched. Few doubt a de-escalation of Washington's trade war - for the next month or two at least - defused a panic. The over-caffeinated waxing and waning of recession warnings speaks to that even if U.S. import tariffs are rising regardless. But the re-inflation of extreme relative U.S. equity valuations can only be warranted if U.S. 'exceptionalism' is truly unscathed. And here's where the story seems improbable, especially if you assume the administration's stated goal of upending the status quo that existed prior to its term. Business as usual is not part of the policy design. On the face of it, the S&P 500 (.SPX), opens new tab is back in positive territory for the year for the first time since February, remarkably less than 4% from its all-time high from February. The VIX 'fear index' of equity volatility has subsided to the lowest since March and back below its long-term average. And before you think that's all just a mega-cap tech rebound, the equal-weighted S&P 500 (.EWGSPC), opens new tab is also back in the black for the year too. Both had been down 12-15% for the year shortly before April 8's 90-day pause on the draconian 'reciprocal tariff' plan of a week earlier. There are several reality checks to that, however. The tech-heavy Nasdaq (.IXIC), opens new tab, small-cap Russell 2000 (.RUT), opens new tab and exchange-traded funds in so-called Magnificent Seven top caps remain in the red for 2025 to the tune of 2% to 6%. More crucially, the S&P 500 itself is still underperforming MSCI's all-country index (.MIWD00000PUS), opens new tab by some 3% for the year so far. And, with the dollar (.DXY), opens new tab down about 6%, it lags Germany's DAX (.GDAXI), opens new tab, the broader euro zone (.STOXXE), opens new tab benchmark and Hong Kong's Hang Seng (.HSI), opens new tab by anywhere between 15-30% in dollar terms for 2025. But it's the valuation rebound that arguably causes most puzzlement with so much of the economic and policy disturbance left unresolved. The S&P 500's 12-month forward price/earnings multiple has jumped back above 20. Although still off February heady peaks over 22, it continues to surf almost 20% above its own 30-year average, more than 40% above equivalent European STOXX 600 (.STOXX), opens new tab valuation and more than 60% above the MSCI emerging markets index (.MISCIEF), opens new tab and Britain's FTSE 100 (.FTSE), opens new tab. That still spells exceptional in most people's books and has to assume those revised U.S. recession warnings remain under wraps and 'value investors' don't get tempted away, or back home, in the case of the trillions of overseas dollars in the market. "Those with sympathy for the MAGA ambitions and methods could believe U.S. exceptionalism will continue to deliver high returns, with strong capital inflows representing a willingness to hold and increase dollar holdings amongst investors in the rest of the world," mused Chris Iggo at AXA Investment Managers. "Recent events might cast some doubts on those assumptions." Iggo wrote that the only meaningful factor that had improved of late was sentiment and relief, driven in part by announcements of billions of dollars in deals done by President Trump on his Middle East tour last week. "Sentiment is fickle though. It could turn sour when the reality of weakening economic data becomes evident," he added. As to whether U.S. market pricing remains extreme, Iggo cast back to legendary investor Warren Buffett's indicator of excessive valuation being defined by how much overall market cap exceeds a country's GDP. Using the Wilshire 5000 (.FTW5000), opens new tab as a measure, U.S. equity market cap is now more than 200% of GDP - twice where it was a decade ago, twice that of France or Britain and more than 50% bigger than the same ratio for Japan. Even if U.S. recession is avoided, the overarching Trump plan to rebalance world trade with higher tariffs, narrower U.S. deficits, a countervailing capital flow reversal, weaker dollar and domestic demand spurs overseas challenge that market exception. Some point to enduring long-term themes of U.S. tech leadership and innovation. But even if faith in that persists, the current disruption has multiple hurdles over the summer ahead. July and August stand out as particularly tricky months. Ninety-day tariff pauses on global and Chinese tariff hikes expire in July, the 180-day review of U.S. membership of all multilateral institutions comes up that month too and the deadline for raising the U.S. debt ceiling drifts back onto the radar amid currently fraught budget negotiations. On top of that, the Federal Reserve's best guess on when tariff rises start to infect inflation in earnest is June - numbers set to be published in July. And even in most investors' best-case scenario of "only" a 10% universal tariff increase, the risk there is that it resolves little. "Settling on a 10 percent tariff might ... be the worst of all worlds—from the perspective of Trump's objectives," wrote Council on Foreign Relations President Michael Froman. "It could be too low to raise substantial revenue, too high to avoid pushing up prices, but not high enough to re-industrialize the United States." The opinions expressed here are those of the author, a columnist for Reuters
Economist
07-05-2025
- Economist
Bosses beware: the tariff shock is not like covid-19
PEER INTO a Bloomberg screen and the parallels between the past month and the spring of 2020 draw themselves. Then as now the VIX index, which tracks share-price volatility, spiked above 40, a level reached only a handful of periods in American stockmarket history. Uncannily, both in 2020 and 2025 the S&P 500 index of America's biggest companies peaked on the same day, February 19th, before declining and then collapsing by more than 10% in a matter of days. The oil price plunged. Sentiment among American consumers was and is down the tubes.
