A noteworthy couple of days as Facebook lost an entire year gains in one day, reminding investors that technology stocks are not necessarily a one-way bet and these investments are very vulnerable should they fail to meet expectations and forecast slower growth rates ahead. The fall wiped off 20 pct from the share price equates to a 100bn dollars from the company’s market value and took place in one brutal move. The NASDAQ index, so much the driver of equity prices in the past few years, did react, but not too severely. The market may be taking the view at this point that this miss is more symptomatic of Facebook’s specific issues from earlier in the year than a broader issue in the tech sector.
Central Banks remain in focus for investment managers as there continues to be the belief that some of the support for equity prices comes from the support central bank monetary policy. On Thursday the ECB, at their monthly meeting, trotted out pretty much what it had done at last month’s meeting. The economy remains balanced and is proceeding along a solid and broad-based path. They confirm that the bond purchase program will end in December and that the first-rate rise is likely to be in the summer of next year.
There has been a lot of speculation, as we noted the other day, that the Bank of Japan may adjust its cap on longer-term yields, as yields on longer-dated Japanese bonds have been rising if only modestly. The US Federal Reserve is almost certain to raise interest rates next week. US Investment-grade yields have been rising this year as the Financial Times front page highlighted the other day.
Except for China where we did get some slight loosening of monetary policy last week, three of the largest economies in the world are tweaking modestly tighter. Ten-year US Treasury yields have once again have bounced up to 3%. Where the bond market goes the equity market usually follows eventually. Equities have absorbed this tweaking so far as economic growth expectations along with modest inflation expectations continue to support risk assets.