Capital 19 Catch-Up

Technology Continues Its Selloff But Pandemic Portfolio Leader Peloton Interactive Tops Lofty Earnings Expectations



Losses from the previous week extended into Tuesday’s session following the Labor Day long weekend break, as the technology stocks continued to be hit hard by profit takers. The third sold-off session in a row saw the S&P500 Tech sector down more than 10%, while Apple (AAPL), Tesla (TSLA), Microsoft (MSFT), Amazon (AMZN), Alphabet (GGOGL), and Facebook (FB) lost a total of more than $1 trillion between them in just a 72 hour period. It’s hard to comprehend that type of money coming and going in such a short period.

Tesla (TSLA) in particular was hit hard, losing 21.1% of its value after the committee that selects stocks for the S&P500 left the electric car maker out of the benchmark index yet again. Apple was another who pulled back from recent all-time highs as it dropped a further 6.7% in the session, taking its three-day losses to more than 14%. It was its worst three day run since 2008. Semiconductor stocks were also hit hard as US-China trade tensions continued to scare away investors.

There was a brief respite in the Wednesday session as tech stocks experienced a mini recovery and the major indices pulled back recent losses. Tesla gained back half its previous day losses, gaining 11%, while Apple did the same with a 4% gain. Investors were hoping the fightback would extend into the following session but after some toing and froing, they were unable to hold onto gains as positive sentiment quickly evaporated by sessions end.

By Friday the S&P500 and the Dow had had enough and finished with slight gains. However, the tech sector continued its sell-off as the Nasdaq fell yet again. It lost 4.1% over the four sessions, in what was its worst weekly result since March. The S&P500 was down 2.5% for the week, in its worst performance since June, while the Dow fared slightly better, losing only 1.7%.

It’s hard to point to an exact reason for the heavy falls experienced over the last two weeks. Other than a few squabbles between the US and China there hasn’t been anything new to cause the direction change. I suspect it is just a pullback for a market that has been going hard and fast since March. If there is one thing I’m certain of, the market just doesn’t keep going up forever. Hedge fund guru Stanley Druckenmiller called the recent period a hangover. We’ve been partying hard for six months now and it’s time for a little headache. But unlike in real life where I sometimes regret going out the night before, I would definitely take a 10% pullback following a 70% runup any time.

The economic data was still solid throughout the shortened week. The weekly jobless claims were under the million mark again, coming in at 884,000, and slightly more than expectations. While consumer prices also moved higher, rising 0.4% in August, with an increase in prices for used cars and trucks rising unexpectedly. The 5% rise in auto prices was its biggest gain since March 1969 and accounted for 40% of the total 0.4% rise.

Our pandemic portfolio leader Peloton Interactive (PTON) managed to do what Zoom (ZOOM) did last week and smash already lofty analyst expectations. Sales in its fiscal fourth quarter rose a whopping 172% as its treadmill and exercise bikes continued to be snapped up by those working from home during the economic shutdowns. Earnings per share came in at 27c compared to the 10c expected, while revenue hit $607.1 million well ahead of the $582.5 million expected. It ended the quarter with more than a million “connected fitness” subscribers who pay $39 a month to access workout classes that come with their equipment. This was up 113% from a year ago. Guidance was also well above expectations, and the stock is now up an impressive 210% since the start of the year.

In the week ahead we have the last Fed Reserve meeting until the November elections. Nobody is expecting Jerome Powell’s crew to make a move on interest rates, however, the wording that comes with the announcement will be watched closely for clues on when the next move can be expected. Data wise we’ll have the empire state index on Tuesday, retail sales for August on Wednesday, and the weekly jobless claims and housing starts on Thursday. Earnings wise it will be very quiet with only Adobe (ADBE), Lennar Corp (LEN) and FedEx (FDX) the standouts.

Apple will be holding its yearly September product event on Tuesday with the title “time flies”. We are therefore expecting a new version of the Apple Watch to hit shelves at some time in the next few weeks. A new iPad is also in the offing, however, experts believe a new iPhone 12 won’t be announced due to supply constraints during the pandemic. The meeting will be held virtually and streamed live to watchers.

Have a great week.