Market

Tech Stocks Shake Off Fifth Day Of Losses, But Insiders Are Cashing Out While Retail Traders Splurge

Topline

After breaking a two-month dry spell with a new record high last week, the tech-heavy Nasdaq, which has fallen four days in a row, is once again underperforming the broader market on Thursday as a slew of tech earnings fail to impress Wall Street, scaring off institutional investors while at-home traders double down on the frothy market.

Key Facts

As of 12 p.m. EDT, the Nasdaq is virtually flat while the Dow Jones Industrial Average jumps 0.6%—above a Wednesday closing high—and the S&P 500 climbs 0.4%.

The Nasdaq—helmed by tech heavyweights Apple, Microsoft, Amazon and Teslas—is now down nearly 5% from a closing high last Monday, and it’s up just 6% for the year, compared to 12% for the S&P, and 13% for the Dow.

Tech-stock prospects in the near term are “very precarious as investors increasingly lose patience following months of sloppy trading and underperformance,” says Vital Knowledge Media Founder Adam Crisafulli, citing tech stocks—including Etsy (down 14%), Twilio (down 11%) and Uber (down 9%)—that are plunging following their after-hours earnings reports on Wednesday.

Highlighting the market’s frothiness, shares of Rocket Companies, the mortgage lender founded by billionaire Dan Gilbert, are plunging 15% after a disappointing earnings report, pushing losses to nearly 55% since Reddit traders helped the stock double in early March.

Vincent Deluard, a global macro strategist at quant-trading firm StoneX, says that although the public has been “buying enthusiastically” in the eight weeks since Reddit mania reached a tipping point, corporate insiders have been cashing out of the market.

Nasdaq insiders, Deluard notes, have sold an “astonishing” $41.5 billion worth of stock in the past three quarters—a behavior that “confirms we are in the late stage of an aging bull market, rather than an early recovery.”

Chief Critic

“When the history of this bubble is written, it will go down as one of the largest transfers of wealth from the public to insiders in history,” Deluard said Wednesday, noting that stock prices have almost doubled in the past 12 months and pointing to an “unprecedented” $105 billion poured into exchange-traded funds over the past eight weeks. The only precedent in history for “such a rapid doubling” in stocks took place in the aftermath of the Great Depression, Deluard notes, adding that a 40% correction quickly followed.

Crucial Quote 

“Stocks are in a holding pattern as investors search for the next inflection point while stretched valuations provide very thin aircover from tape bombs,” Crisafulli said Thursday of the market’s recent tepidness. “Earnings were great but the season is over, growth is booming but also possibly peaking [and] the stimulus surge from President Joe Biden’s rescue bill in March may be winding down.”

Key Background

The Dow and S&P keep nabbing new record highs this year, but not without bouts of volatility. Intensifying an end-of-week selloff, Dallas Fed President Robert Kaplan said Friday that he thinks the Fed should start discussing when it will stop buying $120 billion in assets each month to help prop up economic growth—a practice that helped the Nasdaq more than double in less than a year. The Fed insists it will continue the purchases until the economy reaches full employment and inflation exceeds its annual 2% target, but experts can’t agree on a timeline for those goals. “I think we’re going to reach that benchmark sooner than I would have expected in January,” Kaplan said Friday. Crisafulli believes the Fed could start the tapering discussion at its next Federal Open Market Committee meeting in June—something that’s sure to test the market’s strength at a time when stocks—and particularly those in tech that skyrocketed during the pandemic—are increasingly sensitive to the Fed’s moves.

Further Reading

Tech Stocks Tumble After ‘Sudden’ Trading Slump—Here’s Why Experts Are Worried The Weakness Could Continue (Forbes)

Tech Stocks Like Tesla Are ‘Screaming’ For A Correction–Here Are The Ones Most At Risk (Forbes)

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