Here we are a day on from some Facebook-induced market mayhem and it looks like everyone is in wait-and-see mode. Who can blame them?
After all, Facebook is hardly the only thing to worry about what with the exceptionally fraught political backdrop, the trade war jitters and the Fed meeting, at which Jerome Powell’s effectiveness as a market whisperer will face a trial by fire.
One of the things I suggested on Monday evening is that the tech issue is particularly disconcerting when you consider the sector’s importance from a market leadership perspective. It’s going to be worth keeping an eye on the VXN / VIX ratio. Obviously it plunged early last month when the VIX spiked, but it’s now snapping back. One question worth asking – as Bloomberg’s Michael Regan did yesterday – is where it’s likely to snap back to, the average that persisted from 2007 to mid-2017, or the average it reset to following Goldman’s infamous June 9 FAAMG note:
In the same vein – i.e. sticking with the tech theme – it’s entirely possible that between the Facebook drama, the Uber fiasco, and the focus on cryptocurrency regulation, the entire sector might be headed for a multi-pronged regulatory crackdown.
“On cue, a triple-whammy of blows hit the technology sector: the Facebook data scandal, Uber’s self-driving car fatality and a G-20 focused on the cryptocurrency space,” Bloomberg’s Mark Cudmore writes on Tuesday morning, adding that “those diverse stories will all converge to a similar, very negative outcome for the tech space: tighter regulation and oversight, plus an increase in compliance and legal costs and a significant blow to sentiment.”
Right. And Cudmore goes on to note what I mentioned above, namely that “the dangers are amplified because much of the rally of the last few years for global equities has hinged on the technology sector [and if you] damage this pillar then earnings, valuations, supply chains, trade and innovation all suffer.”
There’s nothing good about that and when you consider the backdrop (i.e. the fact that America is teetering on the edge of a constitutional crisis and the fact that, whether real or imagined, the market certainly perceives a threat from Trump’s protectionist bombast) this feels like an increasingly volatile mix – figuratively and literally.