It was just last week that meme stocks, AI, quantum computing and other leading future-tech crazes were all the rage. Zoom forward a few days and there has been a rotation into the top defensive leaders. Crypto has taken it on the chin so far this week as mandatory liquidations, otherwise known as bad leveraged trading decisions, Bitcoin has fallen to under $114,000 from a recent high of nearly $124,500 — and Ethereum has fallen nearly 16% to $4,200.
Some of the weakness may be a rotation into defensive positions after huge gains as traders are getting out of the Federal Reserve’s way on deciding about a September rate cut. Some of the weakness, as noted above, was from forced liquidations. But some may simply be profit taking during what is supposed to be a weak part of the calendar for stocks (risk). As a constant and steady reminder – the Stock Trader’s Almanac always warns that August and September are the market’s historically weakest months.
Oggonomics has looked into the rotation. it turns out that the premium for put options is not yet all that elevated. It’s pretty cheap to hedge against a broad market correction. After all, the CBOE Market Volatility Index (VIX) is still only 15.67 — proof that the volatility isn’t present for the entire S&P 500 even if tech and the “risk-on” trades have pulled back.
The value that has been lost has been worth tracking. Just keep in mind that Dan Ives, the influential analyst at Wedbush Securities, referred to this as a “1996 moment” as he has told clients that the tech bull cycle will be well intact for at least two to three more years. He also said these types of pullbacks are great opportunities for investors to own the core winners.
Gold has remained firm with a recent price of $3,400 even if it is down from recent highs. The SPDR Gold Shares (GLD) is the largest gold ETF with $103 billion in assets under management. And the CME FedWatch Tool has roughly an 85% chance of a 25 basis point rate cut slated for the September 17 FOMC meeting.
Meanwhile, the iShares Bitcoin Trust ETF (IBIT) has fallen to $64.19 from a recent peak of $69.89. Despite the pullback, and despite some forced liquidations in Bitcoin, this ETF measures a whopping $84.7 million in assets under management. And the iShares Ethereum Trust ETF (ETHA) still has $15.5 billion in assets under management despite a sharp 16% pullback in just a week.
So, let’s look at the value destruction that has been seen during this sell-off.
Strategy Inc. (MSTR) has been among the biggest drops tied to the Bitcoin pullback. After closing down 7.5% alone on Thursday at $336.57 (with a $94 billion valuation), its stock was down 16% from just August 11.
Palantir Technologies Inc. (PLTR) market cap $374.24 billion… closed at $157.75 (-9.35%)… now -15% in a week after closing lower for 5 consecutive days.
Coinbase Global Inc. (COIN) market cap $77.61B… closed at $302.07 (-5.82%)… -6.7% in a week but -27% over the last month.
Super Micro Computer Inc. (SMCI) $25.8 billion market cap… closed at $43.24 (-5.7%)… now -7% in a week and -16% over last month.
Advanced Micro Devices Inc. (AMD) $270.3 billion market cap… closed at $166.55 (-5.44%).
Trade Desk Inc. (TTD) $25.7 billion market cap… closed at $52.53 (-4.4%)… down 34% in last month in post-earnings exit.
NVIDIA (NVDA) $4.28 billion market cap… closed at $175.64 (-3.5%)… down 4% from a week ago but still up 3% from last month.
As for some defensive winners….
American Water Works Co. Inc. (AWK) is the largest water utility of them valued at $29.4 billion. AWK closed up 1.8% at $145.21, but is up 16% YTD with a 2.2% dividend yield.
Duke Energy Corp. (DUK) is a top diversified utility with a $96 billion market cap. DUK closed up 1.9% at $123.78, but is up almost 15% YTD with a 3.4% dividend yield.
Procter & Gamble (PG) is the largest consumer products (non-cyclical) of them all with a $371 billion market cap. PG closed up 1.7% at $158.40, still down 5% YTD with a 2.7% dividend yield.
Altria Group Inc. (MO) is the king of nicotine and closed up 0.8% at $66.56 — and it’s up 27% YTD with a 6% dividend yield.
Verizon Communications (VZ) has a $189 billion market cap and closed up 1.2% at $44.94 — and it’s up 12% YTD with a 6% dividend yield.
Just remember that sell-offs are part of the great game of investing. Bull markets don’t go up every day nor every week. And the lesson for true strategic investors is that some of your assets can always go into safer or riskier assets depending upon the market conditions.
