JPM: More "Tech Wreck" Pain Coming As "A Lot Of Lazy Money Was Chasing Momentum"

Over the weekend, Goldman - whose "FAAMG" report was one of the catalysts to the Friday "tech wreck" rotation out of tech/growth/momentum and into value/energy - warned that the pain may not be over, simply because the outperformance of strong balance sheet companies - usually tech-linked names that have little or no debt and substantial cash flow - in a 10%+ equity market rally is rare; occurring in only 5% of six-month stretches in the last 30 years, and warning that "the last such notable episode was in 2000, at the Tech Bubble peak."

This morning it was JPM's turn to opine on Friday's events, only not on the cause of the mauling, but why we got to where we are. As JPM's macro strategist Adam Crisafuli writes, "tech will remain under pressure - the space has become overcrowded w/a lot of lazy/complacent money chasing momentum and these weak hands can be quick to exit – that departure process usually takes longer than just a few days."

Here is his full note.

What’s happening this morning? Stocks fell pretty much throughout Asia and prices are weak in Europe too. The US futures are down ~6 points. US TSY yields are flattish while 10yr yields are down in France and Italy following weekend political developments (the UK political situation remains very fluid although this really isn’t impacting anything beyond the shores of that country). Crude has a small bid following some encouraging news out of Qatar (Qatar remains committed to the production agreement and Kuwait is hopeful on a resolution to the current regional friction).


The big story Mon morning is price action (instead of news) as the US tech wreck from Fri afternoon cascades around the globe, weighing on IT stocks in Asia and Europe. Blue chip tech stocks were hit throughout Asia, including South Korea (Samsung Electronics -1.5%, NAVER -6.7%, LG Display -4.9%, Hynix - 1.3%), Taiwan (TSMC -2.12%, Hon Hai -2.8%, ASE -2.2%, Largan -0.72%), and HK (AAC Tech - 3.7%, Tencent -2.5%).


Eurozone tech stocks are getting hit too (the SX8P tech index is down >3%, led on the downside by AMS AG, STM, ASM Int’l, Dialog Semi, ASML, Logitech, etc.). The US tech carnage on Friday wasn’t so much a function of fundamentals (which remain healthy) but instead a return to the Nov/Dec ’16 post-Trump reflation playbook (which is why bank stocks did very well in the US last week) as a series of American political developments could help pave the way for pro-growth policy upside surprises in the months ahead. While the odds of a corporate tax bill may be higher than investors anticipated at the start of last week, the ultimate rate cut won’t be as dramatic as initially hoped (~27-28% instead of 15-20%) and the other pieces of the pro-growth agenda (individual tax cuts, large-scale infrastructure spending, legislative deregulatory actions) are unlikely to make it to Trump’s desk.


Meanwhile while tech will remain under pressure (the space has become overcrowded w/a lot of lazy/complacent money chasing momentum and these weak hands can be quick to exit – that departure process usually takes longer than just a few days) it’s unlikely banks will receive the required cooperation from Treasuries (higher yields and a steeper curve) for the BKX to hit fresh highs. Note that AAPL was hit w/its second d/g in as many weeks this morning (Mizuho cuts from Buy to Neutral; this follows the d/g from Pac Crest last Mon 6/5).


LawsofPhysics Mon, 06/12/2017 - 08:02 Permalink

Well, as a primary dealer bank that has been bidding up that bubble, they would know...For fuck's sake, bring back Glass-Steagall already!!!This is all so damn laughable...  ...there is no such thing as "lazy money"...  ...moreover, if in fact people (not algos) are really leaving this money "parked" in tech, wouldn't that mean that this might actually imply some stability in this sector?...but I digress, the casino is still open, place your bets! 

GunnerySgtHartman LawsofPhysics Mon, 06/12/2017 - 08:14 Permalink

+1000 on bringing back Glass-Steagall.It's going to be interesting to see how many people lose everything when this "market" crashes, like they did in the dot-com bust of 2000.  I know people who literally lost their houses and more, having taken out mortgages to place bets in the NASDAQ casino back then.  One of them was so distressed that he committed suicide.

In reply to by LawsofPhysics

ShorTed illuminatus Mon, 06/12/2017 - 08:50 Permalink

No, the kind of lazy money they're talking about here is what propelled the 2000 tech wipe-out.  taking advice from friend, neighbor, mailman (shoe-shinne boy?) on buying CSCO, AOL, CMGI or the likes of stupid for critical thought.Debt, as you very aptly point out, is a whole different kind of lazy money.

In reply to by illuminatus

lotsofbubbles Mon, 06/12/2017 - 08:21 Permalink

Bubble bath? Either print more bubbles or the current bubbles fall flat, just hope no one pulls the plug or we could see a lot of naked "investors" they wouldn't do it would they????

ludwigvmises Mon, 06/12/2017 - 08:52 Permalink

The Nasdaq will crash 50% when this market goes down. Question is: has the fat lady sung yet?  Trump will be smart to disassociate himself from this bubble market as soon as possible before it becomes a wreck.

Endgame Napoleon Mon, 06/12/2017 - 09:13 Permalink

It seems like average people could save money, and home loans were more feasible, when depository banking was separate from speculative banking.

On the rare occasions when they have extra money, most people have no savings vehicle. You cannot play the stock market with the $10 left over when your basic, monthly bills are paid, assuming you can even cover the basics from the paltry paychecks in your $10 -- $12/hour temp, part-time or churn job.

But the interest rate for a savings account is so low that even if you manage to save money, which my ex and I did from a bulk order with a rare degree of volume after we paid the $40,000 business loan on our little shop.

We put it in the bank, where it accumulated a laughable amount of interest, sitting in the bank for 2 years before we needed to put a lot of it back into the business during a slow phase.

Now, a single momma could play the stock market, not from the proceeds from a hard-earned bulk order, but from her yearly Child Tax Credit handout for sexual intercourse and reproduction, especially since her monthly bills, like rent and food, are also covered by taxpayers.

Whereas, we had extra bills to cover: our personal expenses, our shop expenses, our business loan and higher taxes. We had close to a six-figure gross profit in self-generated sales, in a tiny town, with 5 other shops, selling a custom-luxury product that few people buy, but our net income was just a third of our gross. Tax time was very stressful for us. We owed thousands in quarterly taxes every few months.

Tax time means a check as big as 4 months of take-home pay in a $9/hr job for millions of welfare/taxfare mommas. They could put their yearly tax windfalls in the bank, like we did with the proceeds from our hard-won bulk order, earning almost no interest, or they could play the stock market. No stock broker would sneer at $6,269, which is the maximum Child Tax Credit.

Our hard-earned savings account stash was a little less than twice the amount of the yearly, maximum, tax-cash-for-copulation-and-reproduction reward for a single mom or an illegal or legal immigrant parent. The U.S.Treasury Department rewards sexual intercourse and reproduction. It does not reward hard work in a small business anymore than banks.

Our savings account accumulated less than enough interest in 2 years to go out to eat, which we did less than 10 times during a 7-year marriage.

In the current corrupt-a** system, there is a great opportunity to market speculative investments to "working families" who have far more extra money than most business owners or hard-working employees due to the pay-for-womb-productivity system.

One problem:

Single-momma citizens and millions of legal and illegal immigrants are given tons of money by taxpayers to cover their monthly bills--like food, rent, energy, etc.--and thousands in cash at tax time for baby, but they often use their Child Tax Credits, and even somehow their monthly welfare, for tattoos, out-of-town trips with their boyfriends, alcohol, lotto tickets and other forms of gambling.

It is not a little, either.

$96 million in welfare money was traced to casinos and out-of-town hotels in CA.

$22 million in welfare money was traced to lotto winnings in Maine.

ATTENTION: Working Families -- Casino gambling, tattoos and trips with boyfriends are not for baby.

Without profuctive wombs, we never got any welfare or taxfare giveaways and struggled to pay a business loan, two rents, operating expenses and twice as high SS tax. We paid 15% SS tax, while welfare/taxfare moms paid 7.5% in SS tax and no tax for all of their welfare and taxfare.

When quarterly tax times neared every few months, it seemed like a customer always walked through the door with a smaller bulk order, letting us use stock moulding so that we could make enough to pay the Tax Man, thank God.

We still managed to save a little over $10,000. That is the only time I have ever had enough money to bet on the stock market. I guess we should have bet it.……………