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Overview
2022 so far has seen the US stock market mete out immediate and cruel punishment to companies that don’t yet earn a profit. The sell-off in the profit-less tech sector that began in earnest at the start of the year looks to be at least taking a breather with the index moving sideways for the past 3 weeks. The S&P 500 and Nasdaq 100 also seem to have stabilised for now after falling 11% and 26% respectively since the beginning of 2022. Even Apple is down 19% year-to-date despite it being flush with cash. Old-school tech, on the other hand, has been spared. IBM is up 2% for the year. Fellow ‘old-school’ tech giant Hewlett-Packard – now split into HP and Hewlett Packard Enterprise – are also trading well, little changed on the year.
Chart 1: Is profitless tech at the bottom?
Source: Bloomberg
Discretionary (a cyclical sector) is the worst-performing S&P 500 sector ytd, while staples (defensive) is little changed, the best performer after energy. Discretionary is heavily tilted toward Amazon.com and Tesla, so in some way the sector is more a reflection of big tech than the consumer. And big tech has been hit by rising yields and fears of tightening monetary policy and a recession. But discretionary declines have been broad-based: only 10% of the sector is trading above their 200-DMA. Staples defensive status has given them some support. Companies who have managed to navigate rising price pressures, especially by raising prices, have been rewarded.
Chart 2: S&P500 cyclicals v defensives
Source: Bloomberg
Discretionary (a cyclical sector) is the worst-performing S&P 500 sector ytd, while staples (defensive) is little changed, the best performer after energy. Discretionary is heavily tilted toward Amazon.com and Tesla, so in some way the sector is more a reflection of big tech than the consumer. And big tech has been hit by rising yields and fears of tightening monetary policy and a recession. But discretionary declines have been broad-based: only 10% of the sector is trading above their 200-DMA. Staples defensive status has given them some support. Companies who have managed to navigate rising price pressures, especially by raising prices, have been rewarded.
Chart 3: Builders sell off ahead of broader market
Source: Bloomberg
