- Famed value investor Warren Buffett’s Berkshire Hathaway is up 9% from the start of October.
- Meta (Facebook) NASDAQ:META (META) and Alphabet NASDAQ:GOOG (GOOG) are down 34% and 7%, respectively, over the same time horizon.
- The pandemic-lockdown boom in growth technology is long over, and investors that haven’t jumped ship for traditional value are witnessing their portfolios dwindle.
Value holding the line
The US S&P 500 is up 6.5% from the start of October, and the S&P/ASX 200 is marginally higher, with a gain of 8.2%.
Trailing the META and GOOG losses over the same time horizon, Atlassian NASDAQ:TEAM (TEAM) is down 42%, and Xero ASX:XRO (XRO) fell by 2%.
Traditional bastions of large market capitalisation have fared better. BHP Group ASX:BHP (BHP) is higher by 7%, and Commonwealth Bank of Australia ASX:CBA (CBA) added 15.6%. The story is much the same in the US, with JP Morgan NYSE:JPM (JPM) rebounding by 25%, and Exxon Mobil NYSE:XOM (XOM) continuing its resurgence by adding 30%.
Software as a service (SaaS) was the darling of the pandemic era as companies large and small sought ways to defend their operations and productivity in remote working environments during the pandemic lockdowns.
The surge in revenues from SaaS and eCommerce have retreated as big tech plays catch up to the new offerings and many return to old shopping and leisure habits.
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With META battling under the weight of Apple NASDAQ:AAPL (AAPL) distribution and revenue share models, plus the run-up costs in their risk-it-all play into the Metaverse, the outlook is dimming for technology hiring.
Technology boards are lowering their revenue outlook for 2023 against a backdrop of stiffer market competition, plus reduced wallet-share as the sector battles for dollars eroded under higher inflation and borrowing costs.
This is feeding into 52,000 jobs cut in the US tech sector alone in 2022, and it appears more are likely in 2023.
Nowhere else to go
As interest rates continue to rise, bond valuations are decreasing. As the US Federal Reserve is forecast to go higher to settle somewhere around 5%, bonds may face more selling pressure.
Large funds are now stuck trying to find a home for their capital as the door to growth and bonds is currently shut.
That has led to a stampede into stocks that are reliably able to return a dividend and sit upon dependable assets. Enter the rush on energy and financials.
Where to now
Any sustained reduction in the workforce in the well-paid US technology sector will likely spill over into other service sectors that rely on their business.
Technology firms will re-evaluate all their current vendor relationships, and many small SaaS firms will come under pressure, hurting overall employment rates.
The biggest dampener on financials and energy will be if employment falls off sharply, and as a result, the stocks will be the last to fall in this economic cycle.
Lower levels of employment will force the hand of financials to raise loan loss provisioning and reduce the need for energy as fewer people travel to and from work.
Despite the recent gains, investors would be well advised to keep a close eye on the markets as the current flows suggest some more difficult months ahead.