Tech sells off in a Tesla Bubble

MARKETS

Things took a turn for the worse in the last hour of trading in New York – with tech shares leading a reversal in the S&P 500, which erased daily gains. Stock markets in China returned to good form with the Shenzhen up 3% alongside gains across Asia. The Nikkei posted gains over 2% while Europe too saw a solid session of gains in a strong started to the week. 

Silver broke above $19 per oz to reach its highest since early September, while gold edged back over the $1800 per oz threshold – helped by the weaker dollar. (We mentioned the resistance at $18.75 in our July 9 market update).

The US dollar was mostly lower on Monday with little in the way of economic data, while the British pound was the big underperformer, giving back some of a 2-week rally.

GURU WISDOM

“Price is what you pay, value is what you get. Whether we’re talking about socks or stocks, I like buying quality merchandise when it’s marked down.” – Warren Buffett
 

Tesla Bubble

It was a volatile day for tech stocks – with shares of Tesla at one point higher by 14% on the day before turning negative and then once again up by 3%. Other mega cap tech shares saw healthy daily gains erased in the last hour of trading. 

There has been a classic ‘melt up’ in tech shares that will probably need to resolve to the downside sooner rather than later. Shares of Tesla are up 300% this year in a monumental rally given the economic circumstances. The gains have made Elon Musk wealthier than billionaire investor Warren Buffet.

One theory behind the gains is that the shares are being bid up before being included in the S&P 500 index. The higher the valuation, the more ETFs will need to buy to get the weighting right, then the current speculators will close their trades.