Markets In Early Stages Of Repricing Regulated Tech Giants

March 22, 9:00 pm EST

Stocks were down big today.  The media will have fun touting the Dow’s 700-point loss.  But while 700 points has good shock value, on a Dow at 24,000, it’s not what it used to be.

Still, as we’ve discussed, the media and Wall Street are programmed to fit a story to the price.  And there are no shortages of potential risks to point to when stocks fall.  We have trade posturing in Washington. We have a Fed that’s in a tough position, trying to balance a bullish view on growth with the perception that rising rates could choke off that growth.  And we have more regulatory scrutiny growing against the tech giants — with Facebook being the latest in the hot seat.

All of that sounds like bad news.  But we also have corporate earnings on pace to grow at nearly 20% this year.  And that could be an undershoot, given the inability of Wall Street to calibrate the effects of tax cuts on demand.  And we have a big trillion-dollar plus infrastructure plan coming down the pike too.  This is all as consumers are in as healthy a position as we’ve seen in more than a decade.

But what about a trade war?  Doesn’t that threaten the earnings and growth outlook.  Not more than nuclear war.  And that was, in the public perception, probably as much of a risk last year, as a trade war is now.  Stocks went up 20% last year.

Most importantly, we’ve discussed the merits of fighting China’s currency manipulation. If we don’t, we (and the rest of the world) are destined to repeat the cycles of credit booms and busts, with a persistent wealth drain along the way.

It has to be done.  And it’s best done when there is leverage.  And there is leverage now, as our economic recovery has the chance to lift the global economy out of the rut of the post-crisis stagnation (i.e. everyone needs our fiscal stimulus-driven recovery to work, including China).

Now, as we’ve discussed for quite some time:  Markets will correct, as they have.  And corrections are a gift to buy stocks on sale.  But we won’t likely see a resumption of the long-term trend higher in stocks (and likely new highs by year end) until we start seeing hard evidence that fiscal stimulus is working.  And we’ll see that in earnings and growth data, much of which is still a month out.

With all of this said, we pointed last week to the signals that predicted this latest down-leg.  It was the big technical reversal signals across the tech heavyweights: Amazon, Apple and Microsoft.  Those three stocks led the bounce from the February lows.  And those three stocks have predicted this slide and maybe retest back toward the February lows.

What may be the real casualty left from this correction in stocks, when it’s all said and done?  It may be those tech giants.  As we’ve discussed, the heyday of crushing competition with the advantage of little-to-no regulation, are probably coming to an end.  That will change the way these companies (Facebook, Amazon, Google, Uber, Airbnb, etc) operate.

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