The assassination attempt, the outage, and the decline in global stocks
Insights to help you outperform Wall Street
In preparation for writing this newsletter, I use my own Twitter timeline, Google, a curated Feedly feed, and some notes I’ve made throughout the week.
So you can imagine my angst when it came to deciding which story I should lead with first: the infamous Trump raised fist, or the global IT meltdown.
I’m a recovering socialist and I operate from a Chromebook so it was a no-brainer what to lead with first:
US stocks closed off the worst week for the S&P 500 since mid-April. Friday's decline in stock prices was exacerbated by the global CrowdStrike outage caused by a software update, which led to cancelled and delayed flights, bank outages, hospital cancellations, and more widespread disruption.
Those of you still wedded to the Microsoft ecosystem would’ve taken no comfort from the fact that according to The Verge, a support note on Microsoft’s Azure outage page says it has heard from customers that rebooting virtual machines and PCs multiple times can help.
“We have received feedback from customers that several reboots (as many as 15 have been reported) may be required, but overall feedback is that reboots are an effective troubleshooting step at this stage”.
Fintwit immediately went into overdrive about how CrowdStrike is undervalued but looking at the chart, if $300 gets broken to the downside, then it has a lot further to fall.
This is highly likely given the reputational damage caused due to the global nature of the IT crisis.
Stock markets in decline
It was the outage, the assassination attempt and comments made by both former President Trump and from inside the White House about the relationship between the US and Taiwan which caused the global stock market declines this week.
“Taiwan should pay us for defense…. You know, we’re no different than an insurance company. Taiwan doesn’t give us anything… [Taiwan] did take about 100% of our chip business”
Former President Donald Trump
Shares in semiconductors and tech more generally fell on Tuesday, the same day Trump’s comments were made public from an interview conducted on 26th June with Bloomberg.
The United States is Taiwan's most important international supporter and arms supplier, but they have no formal defence agreement. The U.S. is, however, bound by law to provide Taiwan with the means to defend itself.
As for the Biden administration’s influence on the direction of global markets this past week, it was reported that they were debating using an export control called the ‘foreign direct product rule’, unnamed people familiar with the matter as sources.
The rule does not allow the export of any good to any country if it’s manufactured with a certain percentage of U.S. intellectual property components.
Almost half of ASML’s revenue for the second quarter came from sales to China and it is the only company in the world that makes the equipment needed for advanced chips manufacturing.
The house view
Fundstrat came out with an interesting set of figures this week: 13% of S&P 500 companies have reported second-quarter earnings results, 81% are beating profit estimates by a median of 4%, 61% are beating revenue estimates by a median of 3%.
If you’re a long-term investor like me then that will provide you some comfort, as will the fact that in my view, the AI/tech trade is intact, despite the sideswipe to global tech by politicians and the mammoth blunder by Crowdstrike to global IT systems.
Much like Trump’s defiant raised fist, the value of global stocks, especially in tech, will likely return to growth backed by the realisation of outsized earnings growth for the remainder of this year at the very least.
NOTE: I see tech earnings growing into mid-2025.
The Pilane Capital Technology Growth Index (#PILTECHX)
Here are the numbers this week up to 19th July:
Pilane Capital Model Portfolio: (PILTECHX): -5.57%
S&P 500 (SPDR® S&P 500® ETF Trust - SPY): -1.96%
NASDAQ 100 (First Trust NASDAQ-100 - QTEC): -5.62%
The second worst weekly returns for PILTECHX are not much to write about but then again, I’m a long-term investor so weekly fluctuations in stock market valuations are the least of my worries.
Here are the inception (19th Jan) to date (19th July) numbers:
Pilane Capital Model Portfolio: (PILTECHX): 33.14%
S&P 500 (SPDR® S&P 500® ETF Trust - SPY): 14.28%
NASDAQ 100 (First Trust NASDAQ-100 - QTEC): 5.21%
2024 being an election year means there will be a lot more chop between now and the end of the year.
One thing I’ve neglected to mention is that there are now 93.3% odds that the Fed’s target range for the federal funds rate will be lowered by a quarter percentage point to 5% to 5.25% in September from the current 5.25% to 5.50%, according to the CME FedWatch tool.
If when the Fed does cut rates, it will be a boost for global markets as monetary tightening comes to an end.
See you next week!
D J Thomas