(Bloomberg) — In a stock market hit from every direction, from the Russia-Ukraine conflict to surging oil and its impact on Federal Reserve policy, it’s been all but impossible to get a grip on minute-to-minute market swings.
One consistent trend, however, is tech speculators getting burned.
The ARK Innovation exchange-traded fund, known by its ticker ARKK, fell for the fifth straight day. Shares of Tesla Inc. retreated for the fourth consecutive session, having shed a quarter in value since 2022 started. Meanwhile, a Goldman Sachs basket of non-profitable tech companies, which is trading near its lowest levels since July 2020, lost as much as 3.3% Wednesday, and fund tracking newly public firms lost 2.5% at one point.
The ARKK fund, the epitome of risk taking, has lost more than 30% since the start of the year, with short interest as a percentage of shares outstanding sitting near records at 11%, according to data from IHS Markit Ltd. And while Bitcoin hung tough during the session, the Bloomberg Galaxy DeFi Index lost roughly 12% at one point in Wednesday trading.
“This market is made up of whipsaw moves — ‘buying the dip’ has not worked for the past two months,” said Michael O’Rourke, chief market strategist at JonesTrading. “Thus, investors are stepping back from the more speculative areas of the market because they are not being rewarded for the higher risk that accompanies such volatile names.”
Erratic swings have been prevalent all year as investors struggle to price in a host of factors, including red-hot inflation readings and a Fed that’s on the verge of raising interest rates. On top of that, investors are also weighing escalating geopolitical tensions in Europe. The White House expanded sanctions against Russia Wednesday, with new U.S. penalties hitting Nord Stream 2 AG and its corporate officers.
A day after closing in correction territory — a 10% drop from recent highs — the S&P 500 reversed Wednesday morning gains to fall as much as 1.1% by the afternoon in New York trading hours. The small-cap Russell 2000 index at one point dropped 0.8%, while the Nasdaq 100 was down 0.8% as of 1:03 p.m.
“We’re going to see a lot of volatility in the weeks ahead because clearly the situation is by no means clear,” said Aoifinn Devitt, chief investment officer at Moneta, referring to the geopolitical tensions.
Wednesday’s action is consistent with a pattern that’s been seen for weeks — morning rallies give way to afternoon selloffs one day, only to exhibit the reverse again the next.
“Equities saw some relief premarket but were quickly sold on the open as investor debate whether 10% is enough or whether we need a final flush to really reset,” wrote Chris Murphy, co-head of derivatives strategy at Susquehanna.
Still, Murphy says that should 2018-esque moves repeat — when stocks also declined on Fed developments — the market could be due for a short-term rally.
“However, after a bounce, the 2018 analogy has a lot more downside,” he added.
Some of the wildest moves Wednesday were in the energy space, which is sensitive to any escalation in the conflict between Russia and Ukraine. The price of oil resumed its upward stretch — with Brent crude reaching $97 a barrel — after JPMorgan Chase & Co. said prices are likely to average $110 in the second quarter.
Risk sentiment is now taking a beating given the uncertainty over how inflation-fueling commodity prices will change the monetary-tightening game, said Anastasia Amoroso, chief investment strategist at iCapital.
“All of that is now kind of a confluence of really negative factors that’s weighing on the markets here,” she said on Bloomberg TV.
Meanwhile, strategists at Morgan Stanley led by Michael Wilson say that though investors have been focused on Russia-Ukraine tensions over the past few weeks, signs of slowing economic growth are no-less ominous. The bank’s earnings model projects “a meaningful deceleration in EPS growth in the coming months,” they wrote in a note, adding that earnings revisions breath trends have also been slowing.
All the same, still-contained credit spreads are giving bulls comfort. For that reason, Erin Browne, portfolio manager at Pacific Investment Management Co., is staying broadly optimistic.
“I think over a medium-term perspective you’d do well buying here, but the next couple of weeks are going to continue to be choppy and certainly we could see downside risk from here,” she said on Bloomberg TV.
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