It looks like the markets have somewhat stabilized after the Federal Reserve commentary regarding tapering and interest rates. We are keeping it light for the last week and watching how high growth tech stocks perform before we go into the new year, especially with the Omicron variant. Many stocks are down 20-40% from highs, and the new year could setup some good buys for us.
It is no surprise that the markets are displaying volatility. Inflation is the worst it has been in years, the federal research has announced that it will start to raise interest rates next year, a new covid variant has caused stocks to sell off once again.
While the Nasdaq Composite is still within 10% of all-time highs, the broader tech market is really telling us a different story. According to a recent article in Forbes, If you take the Nasdaq Composite and exclude the Nasdaq 100 companies, the unweighted average distance from the 52-week high on December 17th was 43%. That is a big drop when you look at it compared to the broader index.
A big part of this is because companies like Apple, Microsoft, Google, and other mega-caps have an outsized weighting on the index and have held up quite well as they become a flight to safety.
What this means is that some great tech stocks have been pulled down with the broader market and thrown out with the bath water and that’s exactly what I want to look at today.
After several losing sessions, we have seen signs of life in the market. Small caps have suffered extreme difficulties previously, but now they are outperforming the greater market on average. While it’s too soon to say what will happen next, and what this means for the big picture, it’s good to see after mand of the most successful tech stocks of the pandemic, as well as cryptocurrencies, have faced such serious pressure. Between historic GDP growth, inflation, upcoming earnings, and the Fed could all push things in different directions. I wouldn’t stay out of the market and risk missing a good rebound, but this is a time to plan ahead, consider the long haul, make smaller trades, and avoid chasing the market.
The markets went from red to solidly green last week after the Fed announced steps to wind down its Covid-era stimulus policies and curb surging inflation. That was unfortunately reversed the very next day as markets went red right from the open. It looks like rising interest rates fears could keep many high-growth tech stocks from clawing back big losses.
It’s not every day that Amazon launches or acquires a new business, but when they do, it has a good chance of scaling into a business that makes millions, if not billions of dollars. Not only that, but it makes the entire business stronger.
Just look at Amazon’s creation of Amazon Web services (AWS), which brought in almost $50 billion in revenue in 2020, or successful acquisitions such as Zappos, Audible, or Whole Foods. There is also Prime Video and Music, which helps them maintain over 90% customer retention. That is hugely impressive given their scale.
The fact is, Amazon knows how to target the right sectors and businesses and that is why I’m so excited by one of the newest businesses that Amazon has launched, targeting an industry that is forecasted to reach $1 trillion by 2035 according to McKinsey.
As a recovering part-time musician, I know a lot about the disconnect between the analog and digital worlds. A whole collection of songs that I originally recorded on analog media are now basically stuck that way.
You see, I still have dozens of reel-to-reel tapes of the early songs I wrote in the late ’80s to the early 2000s, and to go “fully digital,” I would have to hire a sound engineer whose an expert on digitizing these files.
Many thousands of firms throughout the global economy are facing a problem very similar to this one. See, as crazy as it sounds, there are lots of companies out there who have not made a full digital transformation, and drastically need help in order to do so.
All of this explains why IDC says spending on this field of IT services will hit $6.8 trillion between the base year of 2020 and 2023.
The big question is; will Black Friday sales give a big enough boost to beat U.S. retail sales numbers that come out on Wednesday. There is definitely a possibility that this number looks good as supply chain issues have pushed consumers to buy products early to prepare for the holidays. We also once again expect a significant amount of volatility as more details emerge regarding the Omicron variant and inflation fears remain at the back of people’s minds.