A tangled market web of Tesla-bitcoin-ARK Investment could spell trouble for investors, warns strategist – MarketWatch
Tuesday is shaping up to be a tough one for technology stocks, after a selloff greeted investors to start the week.
The Nasdaq Composite COMP, -2.46% — up 40% over the past 12 months — tumbled 2.5% on Monday over concerns rising bond yields could make those tech stocks look pricey. When so-called “risk-free” yields are climbing, it is that much tougher to justify equity valuations that seem lofty.
Leading techs lower in premarket is electric-car maker Tesla TSLA, -8.55%, down 6% after a roughly 8% drop on Monday. Our call of the day comes from Saxo Bank’s head of equity strategy, Peter Garnry, who has been warning clients that Tesla is tangled up in a “risk cluster” that involves bitcoin and Cathie Wood’s ARK Investment Management firm.
Tesla announced a $1.5 billion bitcoin investment earlier this month. Along with Tesla weakness, bitcoin was down 10% early Tuesday, which some attributed to criticism from Treasury Secretary Janet Yellen (see below). That crypto drop will “obviously illustrate the earnings volatility that Elon Musk has delivered to Tesla,” said Garnry.
Meanwhile, Tesla “is also the biggest position across all ARK Invest ETFs which added pressure to its biggest fund the ARK Disruptive Innovation Fund ARKK, -5.79% losing 6% yesterday. This is exactly the risk cluster that we have been worrying about and wrote about two weeks ago,” said the strategist.
In the Saxo note that deep-dived into the hugely popular, actively managed fund’s holdings, Garnry highlighted ARK’s concentration in biotech names that he said could be risky if the market decides to reverse. And Tesla shares represents 6.7% of total assets under management across ARK’s five actively managed ETFs, according to the data Saxo crunched two weeks ago.
“What it means is, that a correction in equities for whatever reasons, could be higher interest rates or prolonged COVID-19 lockdowns, could set in motion selloffs across either biotechnology stocks or Tesla shares and cause performance to deteriorate which could start net outflow of AUM and then the feedback loop has started,” said Garnry, at the time.
All eyes on Federal Reserve Chair Jerome Powell, who is kicking off two-day testimony on Capitol Hill. With more than 10 million Americans still jobless, “Mr. Powell will go out of his way, I am sure, to put tapering to bed and rightly so, as I dread to think what a taper-tantrum of the 2020s will look like,” said Jeffrey Halley, senior market analyst, Asia Pacific, Oanda.
We’ll also get the latest home-price indexes from S&P CoreLogic Case-Shiller and the Federal Housing Finance Agency, along with an update on consumer confidence.
Shares of home-improvement retailer Home Depot HD,
Shares of special-purpose acquisition company Churchill Capital CCIV, +8.37%, also known as a blank-check company, are sinking in premarket. After weeks of rumors, Churchill finally announced a deal to buy electric-vehicle company Lucid Motors.