Why last week’s great tech sell-off should make investors wary

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Good morning. A risk-off mood continues to hang over the markets as U.S. futures—particularly, tech futures—lose ground, following European stocks lower.

Let’s check in on the action.

Markets update


  • The major Asia indexes are clinging to gains in afternoon trading, with Japan’s Nikkei up 0.8%.
  • Japanese shares are higher despite news that Japan’s Q2 GDP collapse was actually worse than first thought. It shrank 7.9% in a revised reading.
  • President Trump vowed on Monday to cut more economic ties with China, suggesting in a speech yesterday that “Made in America” tax credits and tariffs on U.S. companies that move operations to China (or elsewhere overseas) would be part of his second-term agenda.


  • The European bourses emerged from the gates in positive territory, before falling. London’s FTSE was down 0.5% two hours into the trading session.
  • The latest round of Brexit talks get underway today in Brussels and the two sides are so far apart it appears Britain is prepared to simply walk away with no deal. Wary investors are dumping the pound on concerns of a no-deal outcome.
  • Is notoriously thrifty Germany starting to fall under the spell of cheap, easy credit? Deputy finance minister Werner Gatzner suggested the country is in no hurry to return to a balanced budget, a constant of German life.


  • U.S. futures are trading sideways, with tech dragging again. That’s after the S&P 500 fell more than 4% last week.
  • Morgan Stanley thinks U.S. airlines—particularly those with big stakes in the domestic market—are a good investment bet. It jumped back into the sector with overweight ratings for Southwest Airlines, JetBlue  and Delta Air Lines.
  • Here’s what investors should look for in the week ahead: important new measures to gauge inflation; Congress is back—will they strike a deal on stimulus spending?; and presidential election politics heat up.


  • Gold is flat, trading in a tight range around $1,940/ounce.
  • The dollar is up slightly.
  • Crude is trading down with Brent below $42/barrel.


Out of the woods?

I hope everyone had a nice weekend. Let’s do a quick refresher of last week’s trading action now that all the major indexes are open again.

As recently as mid-week, the S&P and Nasdaq were notching fresh all-time highs, and then the bottom fell out. The Thursday and Friday plunges sent the big 3 indexes into the red for the week.

It was the worst sell-off in tech since March. In absolute terms, it was worse than that, says Goldman Sachs.

We probably should have seen it coming. In fact, in this space on Thursday morning I wrote about how the so-called “greed sentiment” was beginning to shift. The concern? Valuations are heating up—too high, too quickly—and that has investors rethinking their portfolios.

By the end of last week, the pessimistic notes kept coming into my in-box. In an investor note on Friday, Goldman Sachs said it had been seeing a cumulative flow out of U.S. equities over the past four weeks. (However, flows into tech were holding up over that time.) The caveat: its flows tally ran through Sept. 2, not counting the big late-week markets swoon. It will be interesting to see the updated figure later this week, which, barring a major rally, will almost certainly show a further flow out of U.S. equities in the past week.

BofA, meanwhile, saw plenty of evidence that tech stocks were overheating. As of the close last Wednesday, FAAMG stocks—Facebook, Amazon, Apple, Microsoft, and Alphabet’s Google—were trading 41% above their 200-day moving average.

And we all know what happened after that: a huge sell-off over the Thursday and Friday sessions, bringing the five FAAMG stocks back closer towards planet Earth, and closer in line to recent pricing trends. And you know what? By this measure, they’re still overpriced.

Interestingly, BofA sees stocks, in general, as “overbought, not over-owned.” That’s another way of saying volatile.

BofA sees a few head- and tailwinds in the weeks ahead. The factors that could give stocks a boost include: a meaningful vaccine breakthrough, solid economic data and dollar weakness. What could take the wind out of the markets’ sails: virus spikes and Election Day uncertainty.

Happy trading!



Herpetologists, I need your help.

Legit question here: How does a garden snake manage to slither up to a second-floor bathroom?

Yesterday, on our last day in Amandola, my wife opened the door of the upstairs bathroom to find a snake sidewinding back and forth along the window sill.

“Bernhard, vieni! Subito,” she called to me. (Come quick!) “Biscia! Hurry! Biscia!”

Distracted, I didn’t catch the urgency in her voice. Making matters worse, I completely botched the translation. When she said “biscia” (pronounced: bee-SHAH) I figured she was talking about some kind of bathroom mishap. (Italian speakers will no doubt recognize the word I thought she said, which rhymes with biscia.)

The kids, I grumbled. And so I trudged up the stairs in the direction of the commotion.

When I opened the door I got the surprise of my life. “That’s a snake!,” I shouted, to which my wife flashed me one of those you’re-always-a-step-behind looks. (Not the first of the day.)

“Who let a snake in the house?,” I blurted out accusingly.

“Get rid of it,” my wife commanded, this time in English.

The little yipper was coiling as I approached. But it seemed to confuse the curtain for the enemy. It took a few gummy bites of the curtain material, allowing me to open the window over its head.

I stepped back. It slithered up and over the window frame and out of the house, falling to the ground below.

Problem solved. Now the hard work: retracing its steps.

It either got into the house from the ground floor, climbed the steps, made a beeline to the bathroom, and somehow climbed up the sheer tile wall to get to the window sill where it could startle my wife. Not likely.

Or, it somehow made its way up the outside of the stone wall of the house and crawled into the open bathroom window (who left that blasted window open?!). That would be a heck of a climb. Is that even possible?

Or, it hitched a ride in something up to the second floor? [Checks pockets].

Or, my wife planted it there to test my crisis-management skills. Nah.

I have no idea. Which is why I figured I’d ask the snake (or marriage) experts here.


Have a nice day, everyone. I’ll see you here tomorrow. 

Bernhard Warner

As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.

Today's reads

SoftBank's hard landing. SoftBank shares closed down more than 7% on Monday after a number of press reports surfaced that the tech-incubator-turned-investor was making huge bets on technology stocks using equity derivatives. As one analyst told Bloomberg, “SoftBank was riding the Nasdaq wave like a mutual fund. The market is falling now and investors have zero visibility, so they are selling SoftBank stocks.”

Biggest bubble in history? That's the question the Financial Times' Andrew Parlin poses as he runs the numbers on over 8,500 listed American companies. The metric to watch out for is stock-price-to-sales. If price exceeds sales by a factor of 10, that's considered a really expensive stock. (Tesla bulls, you should probably look away now). "Only at the very top of the dotcom bubble, in March of 2000, can we find a larger percentage of stocks (6.6 per cent) trading in excess of 10 times sales," Parlin notes.

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Market candy

Quote of the day

Rotation is the lifeblood of bull markets.

That was a saying popularized by veteran investor Ralph Acampora, and it holds particular weight these days in this crazy bull market. With that in mind, The Wall Street Journal's Simon Constable offers up three investment strategy tips to help you diversify, and to cushion a potential sell-off in tech shares.

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