Tech, ‘crypto’ and commodities: risk bubbles are deflating everywhere

For those concerned that the notoriously accommodative monetary policy of the last decade has created asset bubbles around the world, the first signs of a puncture are beginning to be palpable. Trouble may be just around the corner after years of sparkling markets.

For Bank of America (BofA) strategists, including Michael Hartnett, the bubble is “simultaneously bursting” in assets like cryptocurrencies, long-lived tech stocks, palladium, and other historically risky areas of the market. The reduction in speculative areas comes as investors prepare for the US Federal Reserve to accelerate the pace of policy tightening. Just by announcing its intentions the Fed, fear has appeared.

“The reduced liquidity by the Fed will lead to an increase in both the equity risk premium and interest rates, which will continue to disproportionately affect riskier assets on the market, including impulse-driven investments in money-losing technology stocks, meme values ​​and, in particular, cryptocurrencies, which have no intrinsic value “, according to Bloomberg Jay Hatfield, gestor de carteras de Infrastructure Capital Advisors.

The most palpable example is that of ETF Ark Innovation, logo of disruptive investment. The fund of the famous investor Cathie Wood has fallen roughly 46% from its all-time high in February 2021. The Fed’s hawk signal has hit ‘expensive’ tech names hard, and many of them, including Tesla Y Year, are the pillars of Ark.

Speculation is draining into other risky corners of equity markets as well. A Goldman Sachs basket of Tech stocks with no benefits has fallen after a rally years, while a follow-up rate of SPACs it is down 35% from its highs.

“A potentially rising interest rate environment is causing investors to reassess the risk they are willing to take,” says Todd Rosenbluth, head of ETF research at CFRA. “Businesses with the highest growth potential, but less stable, are losing favor as investors prioritize the most stable.”

Still, he does not consider the withdrawal of these areas of the market to be a burst of the bubble. “I do not like the expression bubble because it is only evident afterwards”, clarifies Rosenbluth. “We are in the middle of this trend and it may or may not be reversed.”

The index Nasdaq Biotech, which includes companies such as Amgen Y Gilead, lost 6.5% in the first week of the new year, its worst five-day stretch since mid-March 2020. Many members of the indicator have not yet generated sales or profits and have been affected by investor turnover of high-risk, high-reward securities.

Meanwhile, the Invesco Solar ETFs saw an outflow of more than $ 70 million on Thursday, the largest since March of last year. The fund, which posted a gain of more than 230% in 2020, has lost its luster in recent days as the Fed has tightened its tone.

The cryptocurrencies they have not been spared this shock to speculative investment. The bitcoin it had fallen about 40% as of late Friday, after hitting an all-time high of nearly $ 69,000 in November. The ether, the second-largest cryptocurrency by market value, had fallen 35% from its November highs.

Bitcoin’s slide “appears to be more driven by short-term traders and investors who view it as a risky asset and tend to liquidate positions to reduce the risk of their portfolios,” according to Noelle Acheson, director of market prospects at Genesis. Global Trading. “Also, the leverage in the market is not at excessive levels, but it had been increasing, which means that the liquidations of derivative positions help to push the market lower.”

The weakness of technology and cryptocurrencies is a double whammy for an exchange fund that focuses on both industries: the ETF Global X Fintech. The fund – which has both start-ups like Affirm Holdings and cryptocurrency-related companies like Coinbase – has fallen 30% since hitting a record in October.

Meanwhile, the Hang Sang Tech Index It is down roughly 50% from its highs in early 2021 as broad corporate regulations and fears of a housing bubble weigh on Chinese tech stocks.

The raw Materials they have also deflated. After a multi-year climb that led to palladium To an all-time high in May, the metal is down 35%.

“What we’ve seen in the past, when rates go up, either because of the Fed’s expectations of a rate hike or because of the 10-year rate hike, it seems that technology and some of the growth models are seen most affected by the valuation “, summarizes Bloomberg Jerry Braakman, chief investment officer and president of First American Trust in Santa Ana, California.