Stocks rallied yesterday, led forward by tech shares which were strengthened by usual suspect Elon Musk. Traders continue to scratch their heads over the inverted yield curve, wondering whether the albatross is a sign of landfall or an omen of bad things to come.
Comfort investing. Never mind the war in Ukraine and the horrible and unnecessary deaths of thousands. Never mind the spike in commodity prices of corn, wheat, sunflower oil, most of the metals complex, and energy associated with that region as supply is ensnared in the war. That was last Friday’s news. Yesterday morning’s news was all about Elon Musk’s investment in Twitter, his favorite sounding board. Musk is an active investor, and he is not shy about what he is investing in, usually tweeting about it which, more often than not, leads his gaggle of followers to follow suit. This time, the investment was in Twitter itself and it was not Twitter that broke the news. Yesterday morning…as EVERY morning…I was rummaging through overnight news, reports, tweets, stock prices, etc. and something stood out as being peculiar. Twitter was trading higher by some +5%. It was early, so I rubbed my eyes, straightened my specs, and leaned into the screen for a closer look. Ok, a +5% overnight move these days is not completely out of the ordinary, but for Twitter, which has been largely shunned by the investment community and around -50% below its 2021 highs, that kind of move required a closer look. I instinctively typed “CN <GO>” into my Bloomberg (that is the function for Company News) and there it was at 6:08 AM, fresh off the press “Musk, Elon: SC 13G.” “WHAT??” I thought “a 13G?” That is an SEC filing to report ownership of a greater than 5% in a company. I read through the short filing quickly and, in my amazement, I noted that Musk’s investment was not only more than 5%, but rather almost 10%. That is a bigger stake than that of Twitter’s famous founder Jack Dorsey. It was now 6:11 AM and I was deciding who of my colleagues to text message first. Just then, the real news hit the tape under a flashing red background: ELON MUSK TAKES 9.2% PASSIVE STAKE IN TWITTER. The stock instantly gained another +20% in the pre-market. I sent my text messages and went on to complete my morning note, which included the Twitter story.
What is interesting is how the story played out throughout yesterday’s session. You probably already know that the stock was higher by +30% at one point during the day but ultimately closed higher by an impressive +27.12% on a volume of 269 million shares. For some context, the stock typically trades less than 20 million shares a day. Aside from all the speculation of why Musk made the investment and what he might do with it was all the rage on financial news networks, his investment was also a call to action for recently sidelined technology investors. Tech stocks have been the go-to, comfort investments for the better part of the last decade, creating great wealth for investors of all ilk. It was tech that led stocks out of the sharp pandemic-led declines in March 2020 and carried the markets through late 2021 after they faltered. The primary reason given for the pullback was that expected higher yields and interest rates diminish the value of future earnings, and because earnings growth is the primary benefit of tech stocks…well, you know. What followed was a mass exodus out of technology shares. It was not just retail investors, but institutional investors as well.
Did that mark the end of the reign of growth stocks? Looking back in history at all the rate hiking regimes since the 1980s, we note that growth stocks were the clear winner, clocking in with an average gain of +10%. Now, if we look closely, we certainly see volatility along the way, but ultimately growth stocks beat out all other asset classes. So, what was it that was keeping tech and growth under water for most of the last quarter? Fear of the unknown. Investors were so used to technology always prevailing, a prolonged drawdown was disconcerting. The Fed was screaming loudly about rate hikes, inflation was hot, and there was a war in Ukraine. But wait, growth and tech stocks are not really impacted by all those things as long as the companies continue to perform. And perform, they have with most of the mega cap tech companies vastly beating analyst targets in this past earnings season. Investors began to slowly come to their senses in late March and growth shares began to climb. Yesterday, investors witnessed what seemed impossible just days ago: Twitter’s +27% jump. Technology shares led markets higher yesterday as investors grabbed up shares of their old, favorite, go-to stocks. Perhaps they remembered that even when rates are rising…even during recessions…even during pandemics, growth stocks, if properly selected, continue to perform. It is too early to know whether the trend will continue, but it is certainly worth noting. Thanks for the wakeup call, Elon.
WHAT’S SHAKIN’
Domino’s Pizza Inc (DPZ) shares are lower by -2.18% in the pre-market after Cowen downgraded the stock to MARKET PERFORM from OUTPERFORM and lowered its price target. Dominos has an expected PE of 28.14x, which is higher than the median 24.61x PE of its peers. That can be interpreted as the stock’s being expensive. Dividend yield: 1.1%. Potential average analyst price target upside: +15.7%.
Carnival Corp (CCL) is trading higher by +3.90% in the pre-market after it announced that it had the busiest week of bookings in the company’s history. Re-read that, in case you missed it, IN THE COMPANY’S HISTORY. Ok, you got it now. Also higher on the news are Royal Caribbean (RCL) and Norwegian Cruise Lines (NCLH) which are up by +3.0% and +2.78% respectively. Potential average analyst price target upside: +15.2%.
YESTERDAY’S MARKETS
Stocks traded up yesterday, led by technology stocks, as a filing revealed Elon Musk’s large stake in Twitter. The S&P500 Index gained +0.18%, the Dow Jones Industrial Average climbed by +0.30%, the Nasdaq Composite Index jumped by +1.90%, the Russell 2000 Index advanced by +0.21%, and the S&P500 ESG Index rose by +0.94%. Bonds climbed and 10-year Treasury Note Yields added +1 basis point to 2.39%. Cryptos lost -0.57% and Bitcoin slipped by -0.16%.
NXT UP