🔬Sayonara Stocks: Japan's Sumo-Sized Slump
🔬Sayonara Stocks: Japan's Sumo-Sized Slump
Plus: The Tech 'correction' is now a sell-off; and much more!
"A plan without action is not a plan. It’s a speech"
- T. Boone Pickens
“Debt means you had more fun than you were supposed to”
- Greg Fitzsimmons
Terrible day for the big US markets with the S&P 500 -3.0% and Nasdaq -3.4%, as $1.4 trillion in market value is lost.
None of the 11 sector closed higher, with Tech (-3.8%) faring the worst.
Japanese rate hike triggered a global sell-off but negativity around the US economy also was at play. Thursday’s July ISM Manufacturing dropping to 46.8 from 48.5 in June (lowest level since November) and Friday’s soft Non-Farm Payrolls (+114k vs. +175k expected) were the main culprits.
Notable companies:
Nvidia (NVDA) [-6.4%]: Blackwell chips potentially delayed by at least three months due to design flaws; META, GOOGL, and MSFT preordered billions of the new chips.
MicroStrategy (MSTR) [-9.6%]: Bitcoin decline impacts the largest corporate holder of Bitcoin.
Apple (AAPL) [-4.8%]: Berkshire Hathaway sold nearly half of its stake in Q2; now owns ~2.6% of Apple worth ~$88B.
Street Stories
Sayonara Stocks: Japan’s Sumo-Sized Slump
A lot has been made about Japan’s stock market going all kamikaze Monday but I thought I’d try to add a bit of context to the situation.
To start, the Japanese economy has been… well, pretty s*** over the last year. However, estimates are that Japan will avoid a technical recession with a pretty hefty Q2 GDP figure coming out shortly.
On the back of this, the Bank of Japan thought they had enough leeway to announce another interest rate hike.
After the better part of a decade with negative interest rates, Wednesday’s move took their key policy rate to +0.25% - which is the highest it’s been since 2008.
Chaos ensued.
The rate hike helped launch the Yen - which had been building strength since bottoming out in June - into the stratosphere.
For context, double-digit exchange rate moves are pretty much unicorns in financial markets.
Now, Japanese stocks haven’t exactly been a good place to be invested in the last 35 or so years. Ok, let’s not pull punches; they’ve been a dumpster fire.
But that all seemed to be turning around in 2024 as (finally) the Nikkei index was able to break through it’s December 1989 highwater mark and things were looking good.
But the rate hikes and Yen appreciation messed all that up. Japan’s exports are heavily dependent on their affordability so you can see how a +13.4% increase in their exchange rate sorta f***s that up. The prospect of [basically zero] borrowing costs ending also poses a bit of a hiccup.
The result was a 12.4% nosedive for the Nikkei yesterday. But just how bad is that?
Well, it was the second worst day in Japanese stock market history save for Black Monday. Yep, at no point in the Great Financial Crisis, Covid Pandemic or even the Fukushima nuclear disaster (ffs) did the market do any worse. Yeesh.
Sucks for them but why did everything else go to hell yesterday too?
Well, part of that has to do with the unwinding of the Yen Carry Trade. Global institutions have been borrowing money dirt cheap in Japan to finance or invest in assets outside of Japan.
Higher interest rates make that a lot less appetizing. Higher exchange rates make that downright painful.
Most of these institutions are ‘hedged’ in someway - like, say through derivative contracts on Yen exchange rates. So the impact is less disastrous but it does pressure these institutions to begin exiting their positions before their hedges expire. And thus, the stuff they were buying is now the stuff they are selling - and that makes a lot of things go down. Quickly.
The end result - or at least so far - was that most of the big global indices took a bath yesterday. The only one spared from the wreckage was my home market in Canada - only because it was closed due to (the terribly named) Civic Holiday.
And just to sprinkle a even more fun into the situation, the Nikkei bounced back +10.2% today. A friendly reminder that markets are under no obligation to make any sense at all.
Tech’s Chin Check
With Japan buggering things up further, the sell-off in Tech since July 10th has now hit 15%.
Now I’m no grammatician (just found out that’s a real word) but I think it’s officially no longer just a ‘correction’.
Joke Of The Day
An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.
My stockbroker and I are working on a retirement plan. Unfortunately, it’s his.
Hot Headlines
Bloomberg / Judge rules Google monopolized search through illegal deals. Judge Amit Mehta ruled that their $26 billion in payments to Apple and others to make it’s search engine the default option on smartphone and web browsers effectively blocked competitors from gaining share.
NY Times / Elon Musk restarts lawsuit against OpenAI and Sam Altman. Musk’s claims that OpenAI put profits ahead of public good led to the feud that saw him exit the start-up he co-founded. Elon originally withdrew his lawsuit 7 weeks ago just a day before the judge was to rule over it’s dismissal.
Bloomberg / CrowdStrike says Delta CEO ignored help offer during outage. The Atlanta-based carrier was the hardest hit from the outage, saying it took a $500 million charge after cancelling +5.5k flights. Sounds like a Delta thing to do.
Yahoo Finance / Several top brokerage websites crash as the market tanked yesterday.
Reuters / The VIX, Wall Street’s ‘Fear Gauge’ had it’s largest single day jump in history. The CBOE’s Volatility Index jumped to a high of 65.7 before the market opened Monday - up about 42 points from it’s Friday close.
Trivia
Today’s trivia is on one of the great financial dynasties: the Medici.
The famous Medici banking dynasty originated from and for 300 years were de facto rulers of which Italian city?
A) Milan
B) Genoa
C) Florence
D) CapuaIn addition to effectively ruling [one of the above cities], the Medici produced two Queens’ of France, and how many Popes?
A) 1
B) 2
C) 3
D) 4Nicknamed ‘the Magnificent’, this Medici patriarch played a vital role in fostering the Renaissance, including patronages of Brunelleschi, Da Vinci, Donatello, Michelangelo:
A) Cosimo I de' Medici
B) Lorenzo de' Medici
C) Giovanni di Bicci de' Medici
D) Ferdinando II de' Medici
(Yup, that’s three of the four Ninja Turtles. Raphael (the fourth) was also commissioned by Giulio de' Medici, the future Pope Clement VII)
(answers at bottom)
Market Movers
Winners!
Thoughtworks (TWKS) [+27.1%]: Agreed to be taken private by Apax Funds for $4.40/share in cash, valuing the company at ~$1.75B; ~30% premium to prior close.
Kellanova (K) [+16.2%]: Mars reportedly considering a bid to acquire the company; details of the deal unknown.
Sonic Automotive (SAH) [+3.4%]: Q2 earnings beat despite revenue being light; strong Echo Park results; navigated a 12-day CDK Global software outage; maintained Echo Park adjusted EBITDA guidance.
Tenet Healthcare (THC) [+2.3%]: Selling five Birmingham hospitals to Orlando Health for ~$910M in cash; deal expected to close in Q4; analysts positive on deleveraging impact and recurring accretion to Conifer.
Tyson Foods (TSN) [+2.1%]: Q3 EPS, operating income, and revenue all beat expectations; volumes and average prices higher q/q; guided FY24 revenue roughly flat y/y, but highlighted momentum in OI, FCF growth, and falling input prices.
Losers!
MicroStrategy (MSTR) [-9.6%]: Bitcoin decline impacts the largest corporate holder of Bitcoin.
Carlyle Group (CG) [-7.5%]: Q2 after-tax distributable EPS and segment revenue below consensus; highlighted record fee-related earnings and FRE margins; sold Cogentrix Energy to QTCI for ~$3B.
Nvidia (NVDA) [-6.4%]: Blackwell chips potentially delayed by at least three months due to design flaws; META, GOOGL, and MSFT preordered billions of the new chips.
Krystal Biotech (KRYS) [-5.9%]: Q2 earnings missed; revenue slightly better; optimistic about Vyjuvek growth, high patient compliance, and positive access determinations; reaffirmed above-consensus FY R&D guidance.
Apple (AAPL) [-4.8%]: Berkshire Hathaway sold nearly half of its stake in Q2; now owns ~2.6% of Apple worth ~$88B.
Kosmos Energy (KOS) [-4.5%]: Q2 adjusted EPS and revenue better; slower Jubilee well ramp-up in Ghana and later-than-planned Winterfell startup; cut FY production guidance, capex at high end of prior forecast.
Alphabet (GOOGL) [-4.5%]: Federal judge ruled payments to make Google default search engine on mobile browsers violate US antitrust laws.
Albemarle (ALB) [-4.0%]: Downgraded to neutral from outperform at Baird; cited weak supply and demand dynamics in the lithium market.
Moderna (MRNA) [-3.3%]: Downgraded to sector perform from outperform at RBC Capital Markets; faced headwinds for RSV and COVID, including competition and pricing pressure.
Market Update
Trivia Answers
C) The Medici came to power in Florence.
D) Medici family members produced 4 Popes.
B) Lorenzo de' Medici.
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