Tuesday is shaping up to be a tough one for technology stocks, after a selloff greeted investors to start the week.
The Nasdaq Composite
COMP,
— up 40% over the past 12 months — tumbled 2.5% on Monday over concerns rising bond yields could make those tech stocks look pricey. When so-called “risk-free” yields are climbing, it is that much tougher to justify equity valuations that seem lofty.
Leading techs lower in premarket is electric-car maker Tesla
TSLA,
down 6% after a roughly 8% drop on Monday. Our call of the day comes from Saxo Bank’s head of equity strategy, Peter Garnry, who has been warning clients that Tesla is tangled up in a “risk cluster” that involves bitcoin and Cathie Wood’s ARK Investment Management firm.
Tesla announced a $1.5 billion bitcoin investment earlier this month. Along with Tesla weakness, bitcoin was down 10% early Tuesday, which some attributed to criticism from Treasury Secretary Janet Yellen (see below). That crypto drop will “obviously illustrate the earnings volatility that Elon Musk has delivered to Tesla,” said Garnry.
Read: Tesla bitcoin gambit already made $1 billion, more than 2020 profit from car sales, estimates analyst
Meanwhile, Tesla “is also the biggest position across all ARK Invest ETFs which added pressure to its biggest fund the ARK Disruptive Innovation Fund
ARKK,
losing 6% yesterday. This is exactly the risk cluster that we have been worrying about and wrote about two weeks ago,” said the strategist.
Read: Stocks aren’t in a bubble, but here’s what is, according to fund manager Cathie Wood
In the Saxo note that deep-dived into the hugely popular, actively managed fund’s holdings, Garnry highlighted ARK’s concentration in biotech names that he said could be risky if the market decides to reverse. And Tesla shares represents 6.7% of total assets under management across ARK’s five actively managed ETFs, according to the data Saxo crunched two weeks ago.
“What it means is, that a correction in equities for whatever reasons, could be higher interest rates or prolonged COVID-19 lockdowns, could set in motion selloffs across either biotechnology stocks or Tesla shares and cause performance to deteriorate which could start net outflow of AUM and then the feedback loop has started,” said Garnry, at the time.
For her part, Wood, the chief executive of ARK Invest and manager of the popular ARK Innovation exchange-traded fund, last week said she was surprised by how fast companies are adopting bitcoin, and that her “confidence in Tesla has grown.”
The markets
Stock futures
ES00,
YM00,
NQ00,
are dropping, led by techs, with European stocks
SXXP,
sinking apart from some travel stocks. Asian markets had a mixed day
000300,
…
Read more:A tangled market web of Tesla-bitcoin-ARK Investment could spell trouble for
