By Julia Horowitz, CNN Business
Apple, Microsoft, SoFi and Coinbase all sold sharply this week, as investors, anticipating higher interest rates, ditched tech stocks and bought stocks of companies they thought were undervalued.
However, with time, Randy Frederick, managing director of trading and derivatives at Schwab, believes some tech companies will fare better than others.
“The little ones and the most in debt are going to have a hard time,” Frederick told me.
None of these titles had a good start to the year. Apple, which on Monday became the first public company to be valued at more than $ 3 trillion, has lost 5.5% since Tuesday. During the same period, Microsoft fell more than 6%, while fintech startup SoFi and crypto firm Coinbase fell 12% and nearly 7%, respectively.
Break it down: Concerns that the Federal Reserve could raise interest rates more aggressively than investors had expected escalated this week when the minutes of the last central bank meeting were released.
This has encouraged Wall Street to ditch tech companies with high valuations, as higher rates could affect future earnings. It could also lead to higher borrowing costs for businesses that have to take on a lot of debt to keep growing rapidly. Meanwhile, investors have taken hold of stocks in industries like banking that perform well when interest rates rise.
The entire tech industry has been drawn into this rotation. But Frederick believes that once the fervor subsides, the apples and Microsofts of the world will quickly recover, as Wall Street prepares to buy its favorite stocks at a discount.
“When the rebound starts to happen, you will see that it will probably be in the mega-caps first,” said Frederick, referring to the companies with the largest market values.
These companies have plenty of cash on hand – Apple ended its September quarter with a whopping $ 191 billion in cash and marketable securities – and can roll over their debt at prime rates.
That’s not necessarily the case for companies like SoFi and Coinbase, which both went public last year and need their businesses to continue to grow quickly to justify their valuations.
SoFi stock ended near its lowest level on Thursday since the digital lender began trading on the Nasdaq in June 2021.
Overview: Expect to hear the phrase “selectivity” a lot in the coming months. Once interest rates start to rise, analysts believe the buy-it-all rally that set in last year is likely to give way to a period in which investors will have to exercise more. discernment as to the stocks and assets they own.
This could continue to hurt the stocks of riskier companies that looked much brighter six months ago.
Prepare for the US Jobs Report
Economists predict America closed 2021 with strong job gains, although the effects of the Omicron variant may not yet be fully apparent.
Coming soon: The December jobs report is expected to show that the US economy has created 400,000 jobs, nearly double the number in the previous month, according to a Refinitiv survey.
That would lower the unemployment rate to 4.1%, a pandemic-era low.
If the predictions in Friday’s report hold true, the country would have created around 6.5 million jobs in 2021 – an impressive achievement, even if it still leaves the United States with 3.5 million jobs below that. that it was in February 2020.
One caveat: The report is unlikely to show the impact of the new variant yet, notes my CNN Business colleague Anneken Tappe. This is because it is based on polls conducted in the middle of the month.
Omicron was already spreading in mid-December, but the increase in infections dramatically worsened staff shortages by the end of the year.
On the radar: Investors and policymakers place great importance on the Jobs report, an important barometer of the health of the economy. A strong reading would reinforce expectations that the Federal Reserve may soon raise interest rates, while a weak reading may raise doubts. The market is betting more and more on a rise in March.
But during the pandemic, initial data on jobs was cloudy due to difficulties in collecting it. Last month, the US Bureau of Labor Statistics revised September and October data upward by 82,000 positions.
Memes stock goes into crypto and investors go wild
What do you call a report that the most famous memes stock is taking steps to embed crypto into their business?
I’m going to go with “investor catnip”.
The most recent: The The Wall Street Journal reported On Thursday, GameStop is launching a division to develop a marketplace for NFTs, or non-fungible tokens, and set up cryptocurrency partnerships as it tries to diversify its video game business.
The outlet said the company has hired more than 20 people to create an online marketplace for trading NFTs of avatar outfits and weapons, and the company will ask game developers to list NFTs on its hub when it goes live later this year. It is also said to be on the verge of signing partnerships with two crypto companies to co-invest in new games using blockchain technology.
Shares of the Texas-based company were up 14% in pre-market trading.
The takeaway: Companies like GameStop that are at the center of the recent buying craze among amateur investors want to turn the hype into a more meaningful business turnaround. The company’s losses widened in its latest earnings report. And that strategy isn’t a full curve considering the popularity of NFTs, especially among young people, a significant demographic for GameStop.
The company also wants to keep recent followers of its stocks. A pivot to crypto is exciting investors on Reddit and Discord who made GameStop a household name in 2021, which in turn gives bigger players the confidence to hold their bets.
The U.S. employment report for December arrives at 8:30 a.m. ET.
Coming next week: Corporate earnings season kicks off with results from Delta Air Lines, JPMorgan Chase and Wells Fargo.
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