US tech stock belly punch
A mixture of weaker sales, technical problems and investor nervousness over future demand triggered a heavy sell-off among US tech stocks on Monday causing the Nasdaq to tumble 2.7% and the DJIA to lose almost 500 points before closing down 1.56%.
The downward trend in US futures continued early this morning spilling into Europe and Asia. The car sector is also gasping for air after the arrest of Nissan chairman Carlos Ghosn on suspicion of misusing company funds. Daimler, Renault and Fiat Chrysler shares are all heading downhill.
Tech stock sell-off spills into Asia
The FAANG stocks are now somewhat suffering from their own glory. As much as the companies could do no wrong when investors were positively inclined towards them, Amazon, Netflix, Facebook and Microsoft are now selling off much quicker than other stocks. Part of the problem is that investors no longer expect an average growth in profit; if the sales are not double-digit and spectacular – as is the case in with the latest iPhone – the disappointment quickly translates into a selloff in shares. Given how high these stocks have risen over the last year the selloff then triggers chart signals which only provoke more and faster selling. Some analysts are now talking about a death cross in Netflix shares, a situation in which the 50-day moving average, the short-term trend indicator, falls below the 200-day moving average, the longer-term trend indicator, which is likely to turn as ominous for the film provider as it sounds.
Look for potentially further declines on FAANG stocks when the US market opens later but also a fall out in large Asian tech stocks such as Samsung, Sony and Tokyo Electron.
EasyJet results stem FTSE decline
In London, the FTSE also opened lower but utility stocks and food service group Compass stood in the way of a heavier decline. Budget airline EasyJet surprised the market with strong sales and profits – a surprise because airlines have been struggling with rising oil costs and wage inflation this year – and then followed it up with a dividend hike of 43%.
Sterling is just about holding against the euro but is losing ground to the dollar as Britain faces new Brexit related headwinds. France is currently pushing for additional demands in the Brexit deal which will complicate PM Theresa May’s life as she struggles to get parliamentary support for the current deal. While this lasts sterling volatility will remain a given as the currency struggles to hold ground in key currency pairs.
AO World amounts to yet another downgrade
AO World’s outlook statement essentially amounts to yet another downgrade that will wear on already-thin investor patience. It now looks like management is resting its hopes more heavily on a bumper Christmas trading period to meet its expectations for the full year. Losses in the European division, while narrowing a little, are still mounting, all while earnings continue to slide at home in the UK.
AO World still has lots of work to do convincing the market that its investment spending in Europe will add up too much. Operational hiccups like the driver shortages experienced in Germany won’t help its case. Perhaps if Brexit is sorted out smoothly and wages rise more consistently, demand for big-ticket items like fridges and washing machines will improve. But competition will intensify in kind, making it hard to see AO World shares getting close to their 285p float price any time soon.