BLOG

Former Lehman trader and current Bloomberg commentator Mark Cudmore can take a bow: just hours after his latest Macro View forecast predicted more turbulence  for stocks and "another swoon", the S&P tumbled to just about 2,700 yesterday.

So after that quick elevator ride down, is it time to take the escalator back up? Not just yet.

In fact, in his latest macro view released overnight, Cudmore remains decidedly bearish, and notes that after yesterday "triple-whammy" of blows to the tech sector - Uber, FaceBook and crypto regulations - "those diverse stories will all converge to a similar, very negative outcome for the tech space: tighter regulation and oversight, plus an increase in compliance and legal costs and a significant blow to sentiment."

And with much of the rally in recent years largely due to tech as we showed on Sunday, this biggest catalyst for future market upside now appears to be behind us, even if the stratospheric valuations remains, and pose risk of further profit taking:

  • Amazon: 2018P non-GAAP EPS: $16.75; 2018 Adj. Net Income: $7.56BN; fwd P/E 189.9x
  • Netflix: 2018P non-GAAP EPS: $3.07; 2018P Adj. Net Income: $1.435BN; fwd P/E 116.4x
  • Google: 2018P non-GAAP EPS: $12.11; 2018P Adj. Net Income: $8.55BN, fwd P/E 27.3x
  • Facebook: 2018P non-GAAP EPS: $8.388; 2018 Adj. Net Income: $24.65$BN; fwd P/E 25.6x
  • Apple: 2018P non-GAAP EPS: $11.51; 2018P Adj. Net Income: $58.5BN, fwd P/E 15.5x

Cudmore ends tongue in cheek, noting that as we discussed on Monday, "millennial investors felt “excitement” during the February correction. That suggests they saw little reason to cut their exposure to equities in the last selloff. Circumstances may provide them a second opportunity to “excitedly” reduce their equity holdings in the weeks ahead."

His full note below:

Micro Tech Stories Generate Negative Feedback Loop

Global equities are falling into a negative spiral between the micro and macro -- triggered by the confluence of three adverse developments for the technology sector.

As outlined in Monday’s column, the macro backdrop for stocks is looking particularly vulnerable. Such an environment facilitates an exaggerated reaction to individual items of bad news

On cue, a triple-whammy of blows hit the technology sector: the Facebook data scandal, Uber’s self-driving car fatality and a G-20 focused on the cryptocurrency space

Those diverse stories will all converge to a similar, very negative outcome for the tech space: tighter regulation and oversight, plus an increase in compliance and legal costs and a significant blow to sentiment

The dangers are amplified because much of the rally of the last few years for global equities has hinged on the technology sector. Damage this pillar and then earnings, valuations, supply chains, trade and innovation all suffer. This feeds back into a deteriorating macro picture.

The resulting negative feedback loop is being triggered at an inopportune time, with elevated trade tensions and global political uncertainty adding to the risks that the spiral of doom accelerates. Never mind the monetary policy uncertainty accentuated by the first rate-setting meeting for the Fed’s new chair.

On Monday, Bloomberg reported that millenial investors felt “excitement” during the February correction. That suggests they saw little reason to cut their exposure to equities in the last selloff. Circumstances may provide them a second opportunity to “excitedly” reduce their equity holdings in the weeks ahead.