This week in markets the technology sector is on trial, geopolitics is spooking markets and the first quarter earnings circus has started, with positive growth anticipated.
Trump continues to hog headlines and to impact global stock markets. On Monday, the sanctions against Russia led to a collapse in their stock market which in turn hammered the rouble as investors withdrew from the country. With a domestic focus, Trump has also today ordered a task force to investigate whether the US Postal Service is losing out by being Amazon’s ‘Delivery Boy’. Continuing what has become a personal crusade against the tech giant.
Technology is more broadly on trial as seen this week when Zuckerberg sat in front of the Senate Committee. The undoubtedly big yet traditional brains of The Establishment looked largely ill-equipped to question and probe this new world. Whatever our personal view of Zuckerberg, I thought it was impressive to hear from a CEO/Founder who has grown a business from a spare room to be the 4th largest company in the S&P 500. Nonetheless he frustratingly ducked important questions about the extent to which Facebook tracks us across other devices or when offline, and the senators did not have the knowledge to challenge him.
The question of how we regulate and deal with data is a challenge for us all, not just one man and one company. Data is a currency which we will all increasingly be asked to spend in exchange for services provided by companies which need to monetise their operations somehow. As ever, there is no such thing as a free lunch.
Last Friday, Spotify was the latest tech darling to list. Technology now makes up a whopping quarter of the US stock market and in 2017, Facebook, Amazon, Netflix and Alphabet (Google) rallied. The second generation of ‘post FAANG’ disrupters, such as Uber and Airbnb, have largely chosen to remain privately owned. These are the so-called ‘Unicorns’ – privately owned companies worth more than $1 billion. Last week Spotify left the Unicorn club and unconventionally decided to raise funds with what is known as a direct listing, cutting out any Savile Row’d middlemen and selling shares straight to the public. Its shares have fallen from an initial price of $169 to a resting point of about $149 over the week.
As the technology sector runs hot (notwithstanding recent wobbles as regulators and politicians start to threaten operating models) then a trend emerges, we write about it in the papers, people get excited and want to buy in. When many of the brand names are privately-owned, hence out of reach, the retail investor will typically look for a surrogate stock to buy. “If I can’t buy into Airbnb or Uber, what can I buy?” This surge of money has been likened to a herd of elephants trying to get through a small revolving door and in part is responsible for fuelling the FAANG’S fire. It will be interesting to see how the remaining unicorns choose to fuel their growth and to compete against the massive firepower of the FAANGs. They will be watching Spotify very closely.
Back to geopolitics and as much as Trump might want to teach tech who is boss, he himself has redefined its influence and role, using Twitter to predict military action, to speculate and to pull political puppet strings, moving global stock markets with less than 100 letters. The uneasy relationship between lawmakers and technologists will continue to be one of the main stories of 2018, impacting portfolios and politics alike.
Have a great weekend all.