MarketBites Daily Investment Commentary: Tech Stocks Plunge I Energy Sector Shakeup

Stock Market Commentary for 5/11/2021:
  • + Value & Cyclical Stocks: Cyclical value stocks continue to outperform high-growth tech shares. Rising inflation expectations and a rebounding economy should continue to favor: Financials, Energy, Industrials, Utilities, and Materials.
  • Growth Selloff: High growth technology shares led the market lower on Monday. Expect these stocks to slump if inflation goes up, and rally if inflation goes down.

  • Stock Talk:

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Top Investment Story #1: Big Tech Plunges
What is Happening?

All five of the tech mega-caps (Facebook, Apple, Amazon, Microsoft, Alphabet) traded lower on Monday, as they faced analysts’ downgrades and a reality check by economic fundamentals.

Why Does This Matter?:

These 5 stocks make up 21% of the S&P 500 Index (500 largest publicly traded companies in the U.S.). This means that if the top 5 have a bad day, the market has a bad day. Let’s review the causes for the selloff:

– Economic Headwinds: Tech mega-caps are highly sensitive to interest rate changes. Case in point, “As yields rose sharply from November through March, [the five stocks] underperformed the S&P 500 by 7 percentage points.” Case in point, if inflation takes off and interest rates rise, these stocks could be in trouble.

– Political Pressure: Recent Biden Administration appointments suggest possible risk of a stricter regulatory regime and tighter antitrust enforcement. With the exception of Microsoft, big-tech faces investigations over their market power and competitive practices ranging. Some items under scrutiny include commercial litigation, DoJ and FTC antitrust lawsuits, and Congressional probes.

– Wall Street Downgrades: Facebook and Alphabet were downgraded on Monday by Citi analyst Jason Bazinet, on concerns that the Street is too bullish on the outlook for online ad spending. – read more here

– Breaking News: More than 40 attorney generals asked Facebook to abandon plans to build Instagram for kids, which is designed to target children under the age of 13. The public outcry highlights social media’s dilemma – how can they grow revenue and users without facing backlash?

The Takeaway:

Big tech fueled the stock market rally for years; however, changing economic and political landscapes could make future growth more uncertain for these giants.

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– By Raymond Kanyo

– Published in MarketBites Daily Newsletter


Meet the Authors
Top Investment Story #2: Energy Shakeup
What is Happening?

Activist Investor Elliot Management Corp. has taken a stake in Duke Energy ($DUK: 2.86%). The announcement comes at a time where utilities are under scrutiny from the public eye.

Why Does This Matter?

Utilities have been making headlines! Albeit, mostly for bad reasons. Recently, Colonial Pipeline was targeted by a hacking group, causing the largest pipeline in the country to pause operations. Prior to that, Texas dominated headlines as severe winter storms rendered the state’s electrical grid useless. Going back just a bit further, one may remember activist investor Carl Icahn, taking two seats on First Energy Corp.’s board after the firm settled a bribery scandal.

Duke Energy, the $79B North Carolina-based firm, grabs the latest headline. Duke services approximately 8 million Americans for electrical services across multiple states. Duke also provides natural gas to about 1.6 million customers in Ohio, Kentucky, Tennessee, and the Carolinas.

Duke Energy is the owner of approximately $55B in long-term debt, and the company watched its debt rating slowly tumble over the course of a few years. It appears that Elliot Management has already begun to correct the course for the firm.

“strong progress over the last year that has cleared a path forward for growth, resolved equity needs at a premium valuation, settled rate cases and coal ash litigation, and accelerated our clean energy transformation, all of which has led us to increase our long-term EPS growth rate and outperform the S&P Utility Index.” – Duke Energy Management
The firm also reported encouraging earnings in its most recent quarter, citing $992M in net income on $6.15B of revenue. Both respectable, in comparison to the same period of the year prior.
The Takeaway:

Elliot Management Corp. has made a name in getting premium performance from domestic utilities. With the sector under the critical eye of the public lately, perhaps Elliot takes charge and leads Duke to the height of its industry in terms of protocols and preparation? It is unclear how large Elliot’s stake is at this time.

By Jack Dunne

– Published in MarketBites Daily Newsletter


Raymond grew up in Budapest, Hungary, where he played tennis for the Hungarian Junior Davis Cup team. At the age of 16, he received the Davis United World College Scholarship, which was established by legendary investor Shelby Cullom Davis, allowing him to attend the Taft Boarding School in Watertown, CT. After Taft, Raymond received a Presidential Scholarship to the Robins School of Business at the University of Richmond, where he studied Quantitative Economics and Finance. Raymond is a CFA Level III Candidate. Prior to joining Taylor Hoffman, Raymond worked at various financial institutions in the insurance, asset management, and financial consulting space. Outside of the office, Raymond enjoys playing tennis at ACAC and Westwood Country Club.

Raymond Kanyo
Product Manager & Investment Analyst

Jack graduated from the Robins School of Business at the University of Richmond with concentrations in Marketing and Finance in 2019. Prior to joining Taylor Hoffman, he worked in high-growth B2B SaaS marketing; assisting Fortune 100 firms to improve their web performance experience. A Long Island New York native, Jack’s hobbies include passionately supporting the Mets and Islanders, and he enjoys skiing whenever he can.

Jack Dunne
Investor Education Specialist
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