Latest news with #AmericanTreasury
Business Times
24-04-2025
- Business
- Business Times
Why American tech stocks are newly vulnerable
AS THE panic fades, investors' nerves are still jangling. For the time being, stock markets have stopped convulsing and the prices of American Treasury bonds are no longer in free fall. Yet share indices across America, Asia and Europe have hardly recovered their poise; 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. 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. For one group of stocks, that is an especially big problem. 'You can only sell what you own,' says Michael Hartnett of Bank of America, 'and by the end of last year, fund managers in aggregate had a record-breaking 'overweight' position in US equities.' In particular, they had bet on a clutch of tech giants that Hartnett, two years ago, dubbed the Magnificent Seven: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. Between March 2023 and March 2025 'long Magnificent Seven' continuously topped his bank's monthly survey asking fund managers to name the most crowded trade. 'It was an accident waiting to happen,' says Hartnett. Now the accident is under way. Since a peak in December, an equal-weighted average of the Magnificent Seven's share prices has fallen by 27 per cent, far more than the broader S&P 500 index or indeed that for any other big stock market. Tesla has fared worst, with its market value cut in half. Analysts at Goldman Sachs, a bank, have called the group the 'Maleficent Seven'. It is quite a turnaround for companies that, a few months ago, were the standard-bearers for transformative technology, not least artificial intelligence (AI), and the explosive profits it might mint. What is more, their share prices matter greatly even to passive index trackers, since they still account for more than a quarter of the S&P 500's market value. Is the market turbulence killing the hottest theme in investment? BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up With investors having previously bet so heavily on the tech giants, any reversal in sentiment might easily have led to big losses. Recent weeks have been especially tough, however. Erratic policymaking in the White House has prompted investors to question the wisdom of outsize allocations to American assets. A trade war, meanwhile, has sparked worries of a slowdown that hurts America more than others. Such fears might lead you to sell shares in the Magnificent Seven, since they formerly embodied the widespread belief in American exceptionalism and rely on demand from consumers the world over. Moreover, a trade war will cause grave harm to the business models of multinationals whose vast supply chains, and customer base, span continents. That is true not just of the Magnificent Seven but, for instance, of chipmakers around the world. Sure enough, the Philadelphia semiconductor index, which tracks companies in the industry, has fallen by more than a third since a peak in July. The most recent drop in Nvidia's share price, beginning on Apr 15, came after the company said that America's government had barred it from selling its 'H20' chip to China without an export licence. The chip was released last year and explicitly designed to avoid export controls; Nvidia warned the new restrictions will wipe US$5.5 billion from its quarterly earnings. A bite out of Apple Even after the recent plunge in their share prices, most of the Magnificent Seven remain unusually vulnerable to additional shocks. Three of them – Amazon, Apple and Microsoft – have market values that are around 30 times their underlying earnings; Nvidia's equivalent ratio is 34; Tesla's is 118. These compare with an average 'valuation multiple' of 22 for the broader S&P 500 index today, and a long-run historical one of around 19. High valuations are justified for companies, such as America's tech giants, that expect to sustain high rates of profit growth for a long time to come. The lion's share of their value comes not from their present cash flows, but from the much larger earnings they expect to make in the future. Yet all corporate profits many years from now are subject to radical uncertainty, and those for firms reliant on technological innovation are even more so. Who knows what the world will look like in 2030 or 2040? Since the share prices of firms with high valuations depend far more on this future, they are more sensitive to shocks. Meanwhile, the Magnificent Seven's barnstorming profit growth is unlikely to continue for ever. Over the five years to the end of 2024, the group's aggregate earnings before tax, debt interest and accounting write-downs grew at an annualised rate of 41 per cent. Analysts' average forecast for 2025 is still for an extremely healthy 34 per cent. But over the past seven quarters 'the second derivative of earnings has been negative', notes Torsten Slok of Apollo, a private-asset manager, meaning that the rate of earnings growth has fallen. That might be a sign of a slowing economy or – more ominously for companies with market values predicated on ballooning profits – that their trajectories are levelling out. The tech giants also have more to fear from a recession than they did in the past. Investors once lauded their 'capital light' business models, under which they needed to plough only a small proportion of their cash into physical assets and spend little to acquire new customers. This, in turn, helped justify high valuations, since it left tech firms with low fixed costs and hence better able to weather falling demand when recessions materialised. Those days are now history, with the big tech firms splurging on everything from developing new platforms to investing in the physical infrastructure needed for AI. The trend is accelerating. Whereas in 2019 the Magnificent Seven spent 35 per cent of their cash from operations on capital expenditure, in 2025 analysts expect it to be 49 per cent. The hope is that such investment will fuel innovation, better products and even greater profits – and in a boom it may well do. Yet it also leaves the tech giants far more exposed to faltering demand than they were before. The Magnificent Seven are gobbling up capital in another way, too, points out James White of Elm Wealth, an investment firm. Whereas they themselves are profitable, many of their customers – whether for Nvidia's chips or Amazon's Web services – are smaller, loss-making startups much further down the AI food chain. Part of the tech giants' explosive profit growth has therefore come from the floods of cash venture-capital firms and other financial institutions have poured into such startups in recent years. For that to continue, capital must remain plentiful and relatively cheap. Neither is likely if investors continue to worry about the future and prefer buying insurance to taking risk. Even if they prove to be ephemeral, market ructions could yet dole out much more damage to America's corporate titans. ©2025 The Economist Newspaper Limited. All rights reserved
Economist
23-04-2025
- Business
- Economist
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.
Economist
23-04-2025
- Business
- Economist
Why American tech stocks remain 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.
CNN
22-04-2025
- Business
- CNN
We're suddenly talking about the Great Depression when discussing Trump's stock market
Stocks are on the rebound Tuesday, bouncing back from another miserable day on Wall Street. But American financial markets are sounding all sorts of alarm bells that one day in the green can hardly overcome. That's because investors have been sending a clear message: President Donald Trump's trade war is making America an unsafe place to invest. We know this by looking at the broader markets and the assets that traders are buying and – let's face it – mostly selling. Trump's stock market is throwing off some jaw-dropping statistics. How extraordinary? We're now making comparisons to the Great Depression. The Dow Jones Industrial Average has tumbled 9.1% in the first three weeks of April, the 129-year-old index's worst performance for any April since 1932. The only other April that was worse: April 1931. The broader S&P 500 has plunged 14% over the course of Trump's first term – the worst performance through April 21 for any president since records began in 1928, according to Bespoke Investments. Even with a modest rebound on Tuesday – major indexes rose over 2% each – Trump has a long way to bounce back to avoid history. The next-worst start to a term for the US stock market in the first 63 days of trading was under former President Franklin Roosevelt in 1941, with a decline of just over 9%. Meanwhile, traders have given up on the US dollar. During Trump's new term, the US dollar has fallen 5.5%, by far the record dating back to when data started being collected during former President Gerald Ford's term beginning in 1974. The only other presidential term for which the dollar started off even remotely close to this abysmal a start: Trump, during his first term, when the dollar fell 3% in the first 63 days of trading. The dollar hit a three-year low Monday. Typically, when investors get nervous, they pour money into the perceived safety of American Treasury bonds – historically the safe-haven assets to rule all safe-havens. But not this time: Government bond have sold off sharply. Yields, which trade in opposite direction to prices, have surged. The 10-year US Treasury yield has risen to 4.4% just a month after it plunged below 4%. Bonds don't usually swing that quickly. As traders have pulled money out of American stocks and bonds, they've been pouring money into investments around the rest of the world. The MSCI All World index, excluding the United States, has risen 2.9% over the course of Trump's new term. That's roughly on par with the start to former President Joe Biden's term and only slightly below Trump's first term – two periods when US stocks were also booming. Fearful of a global recession, traders have sold off oil dramatically, giving US crude its worst start to any presidential administration since former President Bill Clinton's second term, according to Bespoke. Oil has fallen 19% during Trump's second term as traders worry that demand for travel and shipping will tumble. Oil fell nearly 24% during in the first few months of 1997, as Clinton started his second term. Meanwhile, investors are looking for secure places to park their money. Among the best-performing assets is gold, which surged again Tuesday above $3,500 an ounce, hitting yet another record. Gold has skyrocketed nearly 25% during Trump's new term, absolutely crushing the pervious record of 13.5% during former President Jimmy Carter's start to his term in 1977. No other president in the early days of their administrations has come close to matching Trump's recent gold boom. Trump's trade war is sending the global economy into shock, the International Monetary Fund reported Tuesday. 'We are entering a new era as the global economic system that has operated for the last 80 years is being reset,' the IMF said in an alarming new report Tuesday that predicted rapidly slowing economic growth – particularly in the United States – while inflation is set to reignite. That potentially disastrous combination of slowing growth and rising inflation is difficult to overcome. Although economists don't yet expect anything close to the so-called stagflation of the 1970s, the rapid reordering of global trade dynamics is causing tremendous confusion and unease among consumers, businesses and traders. 'The April 2 Rose Garden announcement forced us to jettison our projections,' the IMF noted, referring to Trump's 'Liberation Day' tariff announcement in which he imposed 10% across-the-board tariffs and announced punishing 'reciprocal' tariffs on dozens of countries that have since been paused for 90 days. Goldman Sachs CEO David Solomon on CNBC Tuesday noted that the confusion around Trump's ever-changing policy has hurt business' ability to make necessary adjustments. 'The level of uncertainty is too high. It's not productive,' he said. 'It will have an effect on the growth of the economy, and we will see that, in my opinion, relatively quickly.'
CNN
22-04-2025
- Business
- CNN
We're suddenly talking about the Great Depression when discussing Trump's stock market
Stocks are on the rebound Tuesday, bouncing back from another miserable day on Wall Street. But American financial markets are sounding all sorts of alarm bells that one day in the green can hardly overcome. That's because investors have been sending a clear message: President Donald Trump's trade war is making America an unsafe place to invest. We know this by looking at the broader markets and the assets that traders are buying and – let's face it – mostly selling. Trump's stock market is throwing off some jaw-dropping statistics. How extraordinary? We're now making comparisons to the Great Depression. The Dow Jones Industrial Average has tumbled 9.1% in the first three weeks of April, the 129-year-old index's worst performance for any April since 1932. The only other April that was worse: April 1931. The broader S&P 500 has plunged 14% over the course of Trump's first term – the worst performance through April 21 for any president since records began in 1928, according to Bespoke Investments. Even with a modest rebound on Tuesday – major indexes rose over 2% each – Trump has a long way to bounce back to avoid history. The next-worst start to a term for the US stock market in the first 63 days of trading was under former President Franklin Roosevelt in 1941, with a decline of just over 9%. Meanwhile, traders have given up on the US dollar. During Trump's new term, the US dollar has fallen 5.5%, by far the record dating back to when data started being collected during former President Gerald Ford's term beginning in 1974. The only other presidential term for which the dollar started off even remotely close to this abysmal a start: Trump, during his first term, when the dollar fell 3% in the first 63 days of trading. The dollar hit a three-year low Monday. Typically, when investors get nervous, they pour money into the perceived safety of American Treasury bonds – historically the safe-haven assets to rule all safe-havens. But not this time: Government bond have sold off sharply. Yields, which trade in opposite direction to prices, have surged. The 10-year US Treasury yield has risen to 4.4% just a month after it plunged below 4%. Bonds don't usually swing that quickly. As traders have pulled money out of American stocks and bonds, they've been pouring money into investments around the rest of the world. The MSCI All World index, excluding the United States, has risen 2.9% over the course of Trump's new term. That's roughly on par with the start to former President Joe Biden's term and only slightly below Trump's first term – two periods when US stocks were also booming. Fearful of a global recession, traders have sold off oil dramatically, giving US crude its worst start to any presidential administration since former President Bill Clinton's second term, according to Bespoke. Oil has fallen 19% during Trump's second term as traders worry that demand for travel and shipping will tumble. Oil fell nearly 24% during in the first few months of 1997, as Clinton started his second term. Meanwhile, investors are looking for secure places to park their money. Among the best-performing assets is gold, which surged again Tuesday above $3,500 an ounce, hitting yet another record. Gold has skyrocketed nearly 25% during Trump's new term, absolutely crushing the pervious record of 13.5% during former President Jimmy Carter's start to his term in 1977. No other president in the early days of their administrations has come close to matching Trump's recent gold boom. Trump's trade war is sending the global economy into shock, the International Monetary Fund reported Tuesday. 'We are entering a new era as the global economic system that has operated for the last 80 years is being reset,' the IMF said in an alarming new report Tuesday that predicted rapidly slowing economic growth – particularly in the United States – while inflation is set to reignite. That potentially disastrous combination of slowing growth and rising inflation is difficult to overcome. Although economists don't yet expect anything close to the so-called stagflation of the 1970s, the rapid reordering of global trade dynamics is causing tremendous confusion and unease among consumers, businesses and traders. 'The April 2 Rose Garden announcement forced us to jettison our projections,' the IMF noted, referring to Trump's 'Liberation Day' tariff announcement in which he imposed 10% across-the-board tariffs and announced punishing 'reciprocal' tariffs on dozens of countries that have since been paused for 90 days. Goldman Sachs CEO David Solomon on CNBC Tuesday noted that the confusion around Trump's ever-changing policy has hurt business' ability to make necessary adjustments. 'The level of uncertainty is too high. It's not productive,' he said. 'It will have an effect on the growth of the economy, and we will see that, in my opinion, relatively quickly.'
