Tangled Tesla-bitcoin-ARK investment market network could spell trouble for investors, strategist warns


Tuesday is shaping up to be a tough day for tech stocks, after a selloff welcomed investors to start the week.

The Nasdaq Composite COMP,
-2.46%
– Up 40% in the past 12 months – fell 2.5% on Monday on concerns that rising bond yields could make those tech stocks look expensive. When so-called “risk-free” returns are rising, it’s much more difficult to justify valuations of stocks that appear high.

The lowest premarket electric car maker is Tesla TSLA.
-8.55%,
it was down 6% after falling about 8% on Monday. Our call of the day It comes from Saxo Bank’s head of equity strategy Peter Garnry, who has been warning clients that Tesla is entangled in a “risk pool” involving bitcoin and Cathie Wood’s firm ARK Investment Management.

Tesla announced a $ 1.5 billion bitcoin investment earlier this month. Along with Tesla weakness, bitcoin was down 10% early Tuesday, which some attributed to criticism from Treasury Secretary Janet Yellen (see below). That cryptocurrency crash “will obviously illustrate the volatility of the earnings that Elon Musk has delivered to Tesla,” Garnry said.

Read: Tesla’s bitcoin gambit already made $ 1 billion, more than 2020 earnings from car sales, analyst estimates

Meanwhile, Tesla “is also the most important position in all of ARK Invest’s ETFs, adding pressure to its largest fund, the ARK Disruptive Innovation Fund ARKK,
-5.79%
losing 6% yesterday. This is exactly the group of risks we’ve been worrying about and wrote two weeks ago“Said the strategist.

Read: Stocks aren’t in a bubble, but here’s what they are, according to fund manager Cathie Wood

In Saxo’s note that delved into the holdings of the hugely popular actively managed fund, Garnry highlighted ARK’s focus on biotech names that he says could be risky if the market decides to reverse. And Tesla shares represent 6.7% of total assets under management in ARK’s five actively managed ETFs, according to data Saxo analyzed two weeks ago.

“What it means is that a correction in the stock for whatever reason, it could be higher interest rates or prolonged COVID-19 locks, it could trigger sell-offs in biotech stocks or Tesla stocks and cause performance to deteriorate. , which could initiate a net exit from AUM and then the feedback loop has started, ”Garnry said, at the time.

For her part, Wood, CEO of ARK Invest and manager of the popular exchange-traded fund ARK Innovation, said last week that she was surprised at how quickly companies are adopting bitcoin and that her “confidence in Tesla has grown.”

The markets

ES00 stock futures,
-0.45%

YM00,
+ 0.06%

NQ00,
-1.64%
are falling, led by technicians, with European stocks SXXP,
-0.64%
sinking apart from some travel stocks. Asian markets had a mixed day 000300,
-0.32%.
Oil prices CL00,
+ 0.52%
are rising, while the closely watched yield on the TMUBMUSD10Y 10-year Treasury note,
1,360%
it is trading at around 1.35%.

The graphic

Treasury Secretary Yellen may have let some steam out of bitcoin BTCUSD,
-10.66%
after repeating some concerns about cryptocurrency in an interview with the New York Times Dealbook. Bitcoin was last down 13% to $ 47,909, taking a bunch of other cryptocurrencies with it.

The buzz

All eyes on Federal Reserve Chairman Jerome Powell, who will begin a two-day testimony on Capitol Hill. With more than 10 million Americans still out of work, “Mr. Powell will do everything he can, I’m sure, to end the taper and rightly so, as I’m scared to think what the 2020s taper tantrum will look like, ”said Jeffrey Halley, Senior Analyst Asia Pacific market. Oanda.

We will also get the latest home construction indices from S&P CoreLogic Case-Shiller and the Federal Housing Finance Agency, along with an update on consumer confidence.

Stock of home improvement retailer Home Depot HD,

they are falling despite the optimistic results.

Shares of the special purpose acquisition company Churchill Capital CCIV,
+ 8.37%,
also known as a blank check company, they are sinking into the previous market. After weeks of rumors, Churchill finally announced a deal to buy electric vehicle company Lucid Motors.

Lamenting the loss of more than 500,000 American lives to COVID-19, President Joe Biden observed a moment of silence late Monday and urged the public to “mask themselves.”

Social media group Facebook FB,
-0.47%
says it will restore links to news articles in Australia, five days after the proposed changes to media law in the country.

Random read

“I can say obscenities to people and they have no idea.” Redditors on pandemic positives.

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