Stock markets continued to sink following last week’s recession worries, spurred by the Federal Reserve’s rate decision and the threat to global growth from China’s continued COVID lockdowns. The fear could be seen across asset classes, as traders offloaded equities and other risk assets in favor of cash.
Within the sea of red, some of the days’ biggest losers were investments that once surfed on waves of optimism: newly public companies would outperform; Cathie Wood’s flagship fund would regain its previous highs; cryptocurrency would shine as an alternate investment class. On Monday, markets appeared to give up on all these dreams.
“One of the things that we’ve learned, at least in this cycle, is that these speculative growthy disruptive alternate high-risk high-reward asset classes were far more rate sensitive than maybe folks thought they were,” said Steve Chiavarone, senior portfolio manager at Federated Hermes.
Newly public companies, many of which are projected to post profits years down the line still, have been particularly hard hit. The Renaissance IPO ETF (ticker IPO) lost as much as 8.7% on Monday, the most since March 2020. The fund has dropped roughly 50% since the start of the year.
For Michael O’Rourke, chief market strategist at Jonestrading, many of these names are “concept stocks” that lack profitability and require access to capital markets to survive. “As investors retrench and liquidity dries up, such companies are at an even greater risk,” he said.
A Goldman Sachs basket of non-profitable tech companies dropped more than 9% at one point Monday. It has lost roughly 25% over the past two weeks alone and is trading at its lowest levels since May of 2020.
“Valuations now matter. Investors are demanding profits,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Cathie Wood’s flagship Innovation ETF (ARKK) experienced its worst month ever in April and its shares are down 51% in 2022. Wood and her firm, ARK Investment Management, have been among the highest-profile victims of the stock selloff, with her flagship fund sagging as much as 9.3% Monday.
Bitcoin Selloff Accelerates
Bitcoin has also been hard-hit, with the digital coin losing 50% since its November peak to fall below $32,000. The digital token has been down for five straight weeks and last week alone lost 11%, according to data compiled by Bloomberg. Other cryptocurrencies have also slid, with an index of 100 digital assets down roughly 30% since the start of the year.
The energy sector was the worst-performing in the S&P 500, falling as much as 7.5%. After the European Union said it would will drop a proposed ban on its vessels transporting Russian oil to third-party countries, West Texas Intermediate crude sank below $103 a barrel. And Saudi Arabia lowered oil prices for buyers in Asia as coronavirus lockdowns in China cut into demand.
–With assistance from Vildana Hajric, Denitsa Tsekova, Cecile Gutscher, Elaine Chen and Katie Greifeld.