Stay-at-home market darling Netflix (NFLX-Q) plunged on Friday, joining a broad decline in the market value of other pandemic favourites this week as investors priced in expectations for a return to normality as more countries gradually relax COVID restrictions.
The selloff that began after Netflix and Peloton (PTON-Q) posted disappointing quarterly earnings spread to the wider stay-at-home sector as analysts judged the new Omicron coronavirus variant will not deliver the same economic headwinds seen in the first phase of the pandemic in 2020.
“There is a confirmation that the economy is gradually moving towards some sort of normalization,” said Andrea Cicione, head of strategy at TS Lombard.
“What we think is very interesting is that Omicron, because of its very high infectiousness, very low morbidity compared to previous waves such as the Delta variant, might actually be the first tangible sign that the pandemic is evolving in the direction that we all expected, i.e. that it would become a manageable endemic disease like the flu.”
Peloton shares lost nearly a quarter of its value Thursday, wiping off nearly US$2.5 billion in market value after the exercise bike maker’s CEO said it was reviewing the size of its workforce and “resetting” production levels, though it denied the company was temporarily halting production.
Meanwhile, Netflix shares were down about 20 per cent as of midday Friday after it forecast new subscriber growth in the first quarter would be less than half of analysts’ predictions.
Both companies were part of a group, along with others such as Zoom and Docusign whose shares soared in 2020, and in some cases 2021 as well, as people around the world were forced to stay at home in the face of the coronavirus.
However, thanks to vaccine roll outs and the spread of the less severe Omicron strain of COVID-19, life is returning to something approaching normality in many countries, leaving companies like Netflix and Peloton struggling to sustain high sales figures.
According to data from S3 Partners, short-sellers doubled their profits by betting against Peloton in 2021, the third best returning U.S. short.
“With a return to the office and travel lanes opening, darlings of the WFH (work from home) thematic are reflecting the growing reality that the world is moving slowly but with certainty towards a new normalcy,” said Justin Tang, head of Asian research at United First Partners in Singapore.
Direxion’s Work from Home ETF has fallen more than 9 per cent in first three weeks of the year, compared to a 6 per cent drop in the fall of the broader U.S. stock market. Blackrock’s virtual work and life multisector ETF has weakened more than 8 per cent this year.
In Europe, lockdown winners are also going through a rough patch, with the fears related the Omicron wave waning adding to the stress rising bond yields are putting on growth and tech stocks.
Online British supermarket group Ocado, Germany’s Meal-kit delivery firm HelloFresh and food delivery company Delivery Hero which emerged as European stay-at-home champions in the early days of the pandemic have underperformed the pan-European STOXX 600 so far in 2022.
In Canada, shares of meal-kit and grocery delivery company Goodfood Market are down 20 per cent so far this year - and down about 74 per cent from this time a year ago.
-- Reuters/Globe staff
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The Rundown
History shows Wall Street slide is no surprise
Wall Street is having one of its worst starts to a year in decades, but investors hoping for immediate respite are likely to be disappointed. As Jamie McGeever of Reuters reports, history is not on their side.
Oil is enjoying a bull market. Energy stocks need to catch up
There is a remarkably bullish backdrop developing for Canadian oil producers this year: Rising crude oil prices are now about 70 per cent higher than they were in early 2020, and the International Energy Agency noted on Wednesday that global oil demand this year will exceed levels seen before the pandemic. But some parts of the energy sector are struggling to keep up with the good news, suggesting Canadian oil producers remain relatively cheap and could be worth a closer look. David Berman shares his thoughts.
Read more: Morgan Stanley expects oil at $100 a barrel in second half of year
Canadian investors flee domestic markets at unprecedented pace
Canadian investors have been pulling money out of the domestic stock market at an unprecedented pace, while redirecting enormous sums into U.S. tech stocks and index funds. For the first 11 months of 2021, Canadian net purchases of foreign investments totalled $144.4-billion – nearly double the previous record set in 2006, according to the latest Statistics Canada data. The bulk of those outflows went into the U.S. stock market. At the heart of the flight to foreign capital is the steady repositioning by big Canadian pension funds, which have shifted their focus from domestic to non-Canadian investments. Tim Shufelt reports.
Greenback churns as investors bet on growth outside U.S.
Currency market investors are less sure about the U.S. dollar’s outlook now than they have been for many months, prompting sharp gyrations by the greenback last week despite red hot inflation data and a hawkish Federal Reserve. Saqib Iqbal Ahmed of Reuters reports.
Others (for subscribers)
Thursday’s analyst upgrades and downgrades
Friday’s analyst upgrades and downgrades
Friday’s Insider Report: Director buys this stock yielding 5.6% with 5% annual dividend growth targeted
Number Cruncher: 15 of last year’s ‘dogs’ that could offer safety and value
Number Cruncher: Eight blue-chip tech stocks that offer refuge amid sector’s volatility
Global ETFs saw record inflows in 2021
Globe Advisor
How some of Canada’s top wealth advisors are approaching this RRSP season
Why investors’ hope for a recovery in the cannabis sector lies in the U.S.
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Ask Globe Investor
Question: I constantly hear ads on the radio suggesting that investors should buy gold, especially in uncertain times. What do you think is a prudent amount of gold to own in a portfolio?
Answer: I’m not a fan of gold, for a couple of reasons.
First, it generates no cash flow, which makes it inherently speculative. The only way to make money on gold is to sell it to a “greater fool” who will pay you more for it. While you’re holding your bullion – and possibly paying storage and insurance fees – gold pays you nothing, unlike a dividend stock that sends you cash every quarter out of the company’s earnings.
Second, gold has been a lousy long-term performer. For the 10 years ended Jan. 20, the price per ounce rose about 10.6 per cent in U.S. dollars, or just 1 per cent on a compound annual basis. After adjusting for inflation, gold’s real value has fallen over that period. In fact, it’s lower today than it was back in 1980.
Gold’s supposed value as an inflation hedge and safe-haven in times of turmoil are common reasons people cite for buying it. But the facts tell another story. Even during a pandemic, and with the U.S. economy currently experiencing its highest inflation rates in 40 years, the price of gold has basically flatlined over the past 12 months.
Yes, there have been periods when gold has shined. Anyone can spot these rallies in hindsight by looking at a gold price chart. But good luck identifying them ahead of time. The same goes for “investing” in bitcoin or any of the myriad other cryptocurrencies that are now being hawked on TV commercials during hockey games, alongside – not coincidentally – ads for sports betting sites.
Like gold, cryptocurrencies have no fundamental intrinsic value, generate no cash flow and don’t give the buyer a claim on any earnings. They’re also wildly volatile. Since peaking in November, bitcoin has lost more than a third of its value.
For my money, I would much rather own shares of a company that generates growing revenues, profits and dividends, and whose share price has a high probability of rising over the long term. That’s why the only gold I own is my wedding ring.
--John Heinzl
What’s up in the days ahead
Ian McGugan will explain why the broad-based economic slowdown is the big reason the market is in such a foul mood to start the year.
All about inflation: World market themes for the week ahead
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff