Nasdaq 100 futures were pointing downward, premarket, after the index lost 2% yesterday in a massive, global selloff of tech stocks. The selling continued this morning in Asia and Europe. The STOXX Europe 600 went down 0.46% in early trading before recovering. Japan’s Nikkei 225 was down 2.5%. And South Korea’s KOSPI was down 2.85%. Bitcoin dipped below $100K but then rallied a little to $101K.
TL;DR
- Michael Burry's $1.1 billion bet against AI companies triggered a global market downturn.
- Tech stocks, particularly the Magnificent Seven, experienced significant losses across global markets.
- Palantir CEO Alex Karp criticized Burry's short bet, calling it "batshit crazy."
- Markets showed mixed performance pre-New York opening, with some indices down and others flat.
The Nasdaq Composite experienced a decline of 2.04% yesterday, with Palantir seeing a drop of almost 8%, Reddit falling 8.4%, Nvidia decreasing by 4%, and SoftBank losing 10% at one point.
Tech stocks present a significant risk of a market downturn. According to analysts Savita Subramanian and colleagues, tech stocks measured by Bank of America accounted for over 90% of the S&P 500's overall return in October. The Magnificent Seven group of stocks was responsible for 80% of this gain.
Those are precisely the stocks that were pummeled yesterday.
Asian markets are also driven largely by a narrow tranche of companies.
“In Hong Kong, it’s six tech stocks that are responsible for 50% of the Hang Seng’s return this year. In Korea, it’s two stocks that are responsible for 40% of the index’s return. In Taiwan, one stock is responsible for more than half of the return, so it is a very narrow rally that is comparable to how much the Magnificent Seven is driving the S&P in the U.S.,” according to Arjun Neil Alim of the Financial Times.
Multiple Wall Street analysts are now asking whether equities are heading for the 10% to 20% correction predicted by the CEOs of Goldman Sachs and Morgan Stanley yesterday.
The drama was heightened when Scion Asset Management, Michael Burry’s hedge fund, disclosed to the SEC that it had a short bet worth $1.1 billion against Nvidia and Palantir. Burry, of course, is the investor who placed “the big short” against subprime mortgages prior to the Global Financial Crisis of 2007. The context is that although Palantir is growing like wildfire—its market cap is $450 billion—its annual revenues are expected to be only $4.4 billion.
Palantir CEO Alex Karp was, unsurprisingly, enraged by the move. His company just delivered a Q3 revenue gain of $1.2 billion, up 63%, beating expectations. After yesterday’s losses in the markets, Palantir was down another 3% in overnight trading.
“The two companies he’s shorting are the ones making all the money, which is super weird,” he said on CNBC. “The idea that chips and ontology is what you want to short is batshit crazy.
“I do think this behavior is egregious, and I’m going to be dancing around when it’s proven wrong,” he said.
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
- S&P 500 futures were flat this morning. The last session closed down 1.17%.
- The STOXX Europe 600 was down 0.46% in early trading.
- The U.K.’s FTSE 100 was flat in early trading.
- Japan’s Nikkei 225 was down 2.5%.
- China’s CSI 300 was up 0.19%.
- The South Korea KOSPI was down 2.85%.
- India’s NIFTY 50 was closed today.
- Bitcoin was down at $101K.