Big Tech faces ‘way more’ than 10% downside, all-star investor Rich Bernstein warns
Big Tech’s troubles may be in their early innings.
Rich Bernstein, an Institutional Investor Hall of Famer, warns that the tech-heavy Nasdaq faces “way more” than a 10% drop in a downturn that will likely last years.
He blames a backdrop dominated by rising interest rates as a major catalyst.
“Everybody seems to know when long-term interest rates rise you don’t buy long-duration bonds. But what people forget is you also don’t want to buy long-duration equities,” Bernstein, CEO and CIO of Richard Bernstein Advisors, told CNBC’s “Trading Nation” on Wednesday. “What’s a long-duration equity? Simply put, it’s one with a high P/E [price-to-earnings ratio].”
The Nasdaq closed up 0.4% to 13,525.20 on Wednesday. It’s up about 3.5% over the past five sessions.
But Bernstein contends the recent strength is temporary and compares the backdrop to the tech bubble of the late 1990s to early 2000s. Just like during that period, he’s seeing most of the hyped stories in growth names.
“There were tons of promises made about what the future was going to look like. Those promises came true between 2000 and 2010. Largely, they came true,” he said. “But the tech sector gave you negative absolute returns for a decade.”
Bernstein, who has spent decades on Wall Street and is known for running strategy for Merrill Lynch, told “Trading Nation” last year he was underweight technology, including the group’s high flyers. He was also bearish on tech in 2019.
Bernstein suggests most investors are in denial of the downside ahead.
“I don’t think too many tech investors today are prepared for negative absolute returns for three, five or 10 years,” he said.
Fox Business/Jonathan Garber
Housing market tops out as lumber, material costs bring headwinds
The once-red hot U.S. housing market is cooling off as rising mortgage rates and surging materials costs take a toll.
Housing starts and building permits both fell by more than expected in February, according to a report released Wednesday by the Commerce Department. The bad news comes a day after a survey found homebuilder confidence fell to a seven-month low in March.
Housing, which has been the standout sector in the economy amid the COVID-19 pandemic, accounts for about 15% to 20% of the country’s gross domestic product, according to the National Association of Realtors.
“The peak in housing is in,” wrote David Rosenberg, chief economist and strategist at Toronto-based Rosenberg Research. He argues the level of the data isn’t as important as the direction and momentum, which has been in decline amid a sharp rise in mortgage rates and lumber prices.
The 30-year fixed mortgage rate touched a seven-month high of 3.24% on Tuesday, up more than 30 basis points over the past month. The rate fell to a record low 2.85% in November.
The jump in mortgage rates has occurred at the same time that lumber costs have surged by more than 170%, causing the price of a modest-sized new home to increase by $24,000. Other materials have seen price increases due to supply-chain issues caused by the pandemic.
The cost increases are pricing some new homebuyers out of the market and that is beginning to show up in the data.
“There are some dark clouds on the horizon,” National Association of Home Builders CEO Jerry Howard told FOX Business’ Stuart Varney on Tuesday.
CNBC/Yen Nee Lee
China is building up its ability to weaponize trade, new report says
China is diversifying its supply of critical natural resources — a move that will shore up Beijing’s ability to weaponize trade against its geopolitical rivals, according to a newly published report by risk consultancy Verisk Maplecroft.
“If China has a soft underbelly, it is its high dependency on foreign natural resources,” read the report released on Thursday.
China is a large consumer of major commodities including crude oil and iron ore. But the country relies heavily on imports to meet its domestic demand for those commodities.
One way the country is diversifying its import sources is by buying stakes in overseas companies, said Verisk Maplecroft. Doing that will increase the proportion of Chinese-owned resources in the country’s total imports, the report said.
As an example, the consultancy said the number of Chinese-owned base metals and gold companies in Oceania rose from zero in the year 2000 to 59 last year. It represented around 22.6% of total foreign ownership in such companies, the report showed.
Oceania is a region that includes Australia, Papua New Guinea, New Zealand, Fiji and numerous island nations.
“China is seeking to strengthen its control over global supply chains via overseas investments and partnerships with international majors. Beijing has been supporting Chinese SOEs [state-owned enterprises] to ‘go global’ and establish control of resource bases overseas since the late 1990s,” said the report.
Gold Advances After Fed Maintains Dovish Line on Interest Rates
Gold rose after the Federal Reserve continued to project near-zero interest rates at least through 2023, bolstering demand for the metal.
Fed Chair Jerome Powell and his colleagues remained dovish at the end of their meeting Wednesday, despite upgrading their U.S. economic outlook and the mounting inflation worries in financial markets. While a growing number of officials saw an earlier start than peers to the withdrawal of ultra-easy monetary policy, Powell stressed this remains a minority view.
The latest messaging by the U.S. central bank may provide some support for bullion, which has been battered by rising bond yields as expectations for a recovery from the pandemic and economic growth fuel inflation concerns. Powell said that the price increases this year are likely to be transient and won’t be seen as progress toward the Fed’s long-term goals. He also said current monetary policy is appropriate and there’s no reason to push back against the surge in Treasury yields.
“Gold prices surged as the dollar went into free fall after the Fed remain stubbornly dovish despite significant upgrades to their growth, inflation, and unemployment forecasts,” said Edward Moya, senior market analyst at Oanda Corp. “Easy money is not going away anytime soon and the bottom is firmly in place for gold.”