One cruel truth the stock market confirmed this past week is that trying to pick the bottom for technology stocks is a fool’s errand. The Nasdaq Composite’s terrible September—it was down 10.5% on the month—has made the bottom-fishing that took place over the summer look ill-advised. As I’ve noted before, the first downturn in tech earlier this year was all about valuations. This new phase of the decline is all about softening earnings. When it comes to price-to-earnings ratios, the market is running into a denominator problem.
The market downturn, the weaker economy, and the reversal of some pandemic-era trends have exposed weaknesses in the business models of companies such as
Peloton Interactive
(SNAP), and investors have adjusted valuations accordingly. But there are still some powerful underlying secular trends that should eventually drive tech stocks higher. Investors with long time horizons and strong stomachs might consider inching into the market. I have a few ideas on where to look.
Stocks declined again on Friday, closing out September with large losses across the board as the rally from the June lows partway through August faded into memory.
The S&P 500 SPX, -1.51%
fell 1.5% on Friday. The benchmark index slumped 9.3% for September, leading to a 2022 loss of 24.8%. The Dow Jones Industrial Average DJIA, -1.71%
gave up 1.7% on Friday, for a September decline of 8.8%. The Dow has now fallen 20.9% for 2022. The Nasdaq Composite Index COMP, -1.51%
pulled back 1.5% on Friday for a September drop of 10.5% and a year-to-date plunge of 32.4%. (All price changes in this article exclude dividends.)
Below is a list of stocks in the S&P 500 that fell the most during September.
Nike Inc. NKE, -12.81%
was down 13% on Friday for a September decline of 22%, after the company warned that discounting to clear inventory would continue to affect its earnings performance. Here’s how analysts reacted.
KYIV — Russia’s annexation of four Ukrainian regions, announced by President Vladimir Putin on Friday, will not affect Kyiv’s resolve to free them with military force, said an adviser to Ukrainian President Volodymyr Zelenskyy.
“For our plans, [Russia’s annexation] doesn’t matter,” Mykhailo Podolyak told POLITICO, speaking before the signing ceremony in Moscow orchestrated by Putin. The Russian leader railed at the United States and the West, denounced the Ukrainian government, and warned: “We will protect our land using all our forces.”
The annexation comes on a day when Ukrainian soldiers have reportedly encircled thousands of Russian troops near the city of Lyman in eastern Ukraine, and a couple of weeks after a successful counteroffensive that pushed Russian forces from the region near Kharkiv — the country’s second city.
The nation “should liberate all its territories,” Podolyak said.
Ukrainian troops have “likely nearly completed” the encirclement of Russian troops in Lyman in the Donetsk region, according to the Institute for the Study of War, a Washington-based think tank.
“Virtually all approaches, logistics routes of the enemy, through which it delivered ammunition and manpower, are already under our fire control,” Serhiy Cherevatyi, a spokesman for the Ukrainian eastern military grouping, told Ukrainian television.
Moscow has not commented on the situation.
Podolyak also shrugged off Putin’s announcement of a “partial” mobilization of reservists last week, with thousands called up and thousands more fleeing the country.
“The mobilization shows that Russia has run out of a professional army,” Podolyak said, adding: “This army is being replaced by absolutely untrained people. A living resource has been thrown onto the front lines, and it will simply be exterminated.”
“This may sound paradoxical, but it’s actually to our advantage that Russia has announced this mobilization,” he said. “This shows the people of Russia that the country really is at war, that it’s not doing very well in this war, and that the Russians themselves will be the ones to pay the price.”
The mobilization is prompting Kyiv to call for more weapons from its Western allies.
“For example, 100 more 155mm-caliber missiles would solve the problem, if you will excuse me for putting it that way, of additional human resources being utilized by Russia on the field of battle,” Podolyak said.
Russian President Vladimir Putin annexed four Ukrainian territories after holding sham referendums | Kay Nietfeld/Pool/AFP via Getty Images
On Wednesday, U.S. authorities announced a $1.1 billion arms package for Ukraine, including 18 additional High Mobility Artillery Rocket Systems (HIMARS).
“Russia now has one card left to play in this war: nuclear weapons. Against a non-nuclear nation. That’s absurd,” Podolyak said.
The worry is how Putin will react to Ukraine’s efforts to liberate the territories seized by Russia, and if the Kremlin will see that as an attack on Russia itself. However, Ukrainian attacks on Crimea and even strikes into Russia proper over the course of the seven-month war have not led to such a retaliation.
Last week, Putin warned: “We doubtlessly will use all weapons resources at our disposal … This is not a bluff.”
U.S. President Biden has warned Putin of the consequences of using nuclear or chemical weapons. Podolyak wants those warnings to be “clearly communicated” to Moscow and for “very tough retaliation measures aimed at the destruction of Russia’s defense infrastructure” to follow.
“For instance, Russia’s naval forces in the Black Sea could be completely destroyed,” he said. “This would be a proportionate response to Russia’s attempt to launch a tactical nuclear strike against the combat positions of the Ukrainian army.”
Meanwhile, Ukraine “will keep doing its job” to liberate its territory, he said.
“We have no other options when it comes to ending the war properly. We can’t leave some enclave [under Russian occupation] or create a new dividing line,” he said, referring to the frozen conflict that followed Russia’s annexation of Crimea in 2014 and the Donbas war in 2014-2015.
U.S. stocks dropped sharply Friday, with major indexes posting their lowest finishes since 2020 and logging a third straight quarterly decline as investors grew more fearful that aggressive interest rate hikes by the Federal Reserve will drive the economy into a downturn in an attempt to quell inflation.
What’s happening
The Dow Jones Industrial Average DJIA, -1.71%
dropped 500.10 points, or 1.7%, to close at 28,725.51.
The S&P 500 SPX, -1.51%
dropped 54.85 points, or 1.5%, to end at 3,585.61.
The Nasdaq Composite COMP, -0.43%
shed 161.88 points, of 1.5%, finishing at 10,575.61.
The drop left the Dow and S&P 500 at their lowest since November 2020, while the Nasdaq posted its lowest close since July 29, 2020. The Dow dropped 8.8% in September, while the S&P 500 tumbled 9.3% and the Nasdaq lost 10.5%.
For the quarter, the Dow dropped 6.7%, the S&P 500 declined 5.3% and the Nasdaq gave up 4.1%.
What’s driving the market
In keeping with the historical pattern, U.S. stocks suffered during the month of September as an assertive Federal Reserve helped push Treasury yields and the dollar higher, which in turn undermined equity valuations.
Investors on Friday digested a reading from the personal consumption expenditure inflation index for August, which showed that core consumer prices climbed by 0.6% last month, more than Wall Street’s forecast of 0.5%. The core inflation measure excludes volatile food and energy prices.
“That means the Fed will remain hell-bent on killing inflation. And the best way to do that is to increase rates, kill the housing market, and get rental costs down. The PCE doesn’t have housing and rents as a big component as the CPI does, so the fact that it is rising is a warning sign,” said Louis Navellier, founder of Navellier & Associates, in emailed comments.
The reading largely confirmed similar data from the consumer-price index, another closely watched inflation barometer, which sent stocks lower earlier this month. Since that report was released just over two weeks ago, the S&P 500 has fallen more than 10%.
Helping to underscore this point, data out of the eurozone showed inflation accelerated at a record pace last month.
In other news, investors also heard from Fed Vice Chair Lael Brainard, who reiterated that the central bank would keep interest rates elevated to combat inflation, even if it harms the economy.
Since it will take time for high interest rates to bring inflation down, Brainard said the Fed is “committed to avoiding pulling back prematurely.”
Investors were also keeping an eye on megacap tech stocks. Apple Inc. AAPL fell 3% on Friday after leading markets lower a day earlier following a downgrade by Bank of America.
A final reading on the University of Michigan consumer-sentiment index for September showed consumers’ view of the economy improved somewhat during the month due to falling gas prices, even as their outlook remained broadly pessimistic.
Investors are now facing “what may be one of the most important earning seasons in a very long time, with a major rally in the cards if earnings don’t disappoint, and if the bears are right, lead to a further leg down if earnings disappoint and 4th quarter estimates are cut,” Navellier said.
Micron Technology MU, +0.18%
stock rose 0.2% after a report that Japan will grant it a $320 million subsidy to make advanced memory chips at its Hiroshima plant. That came a day after Micron posted quarterly earnings that included a forecast for a loss in the coming quarter and plans to scale back a build out of capacity.
— Steve Goldstein and Barbara Kollmeyer contributed to this article
The apparent sabotage of both Nord Stream gas pipelines may be one of the worst industrial methane accidents in history, scientists said Wednesday, but it’s not a major climate disaster.
Methane — a greenhouse gas up to 80 times more powerful than carbon dioxide — is escaping into the atmosphere from three boiling patches on the surface of the Baltic Sea, the largest of which the Danish military said was a kilometer across.
On Tuesday evening, European Commission President Ursula von der Leyen condemned the “sabotage” and “deliberate disruption of active European energy infrastructure.”
Here are eight key questions on the impact of the leaks.
1. How much methane was in the pipelines?
No government agency in Europe could say for sure how much gas was in the pipes.
“I cannot tell you clearly as the pipelines are owned by Nord Stream AG and the gas comes from Gazprom,” said a spokesperson for the German climate and economy ministry.
The two Nord Stream 1 pipelines were in operation, although Moscow stopped delivering gas a month ago, and both were hit. “It can be assumed that it’s a large amount” of gas in those lines, the German official said. Only one of the Nord Stream 2 lines was struck. It was not in operation but was filled with 177 million cubic meters of gas last year.
Estimates of the total gas in the pipelines that are leaking range from 150 million cubic meters to 500 million cubic meters.
2. How much is being released?
Kristoffer Böttzauw, the director of the Danish Energy Agency, told reporters on Wednesday that the leaks would equate to about 14 million tons of CO2, about 32 percent of Denmark’s annual emissions.
Germany’s Federal Environment Agency estimated the leaks will lead to emissions of around 7.5 million tons of CO2 equivalent — about 1 percent of Germany’s annual emissions. The agency also noted there are no “sealing mechanisms” along the pipelines, “so in all likelihood the entire contents of the pipes will escape.”
Because at least one of the leaks is in Danish waters, Denmark will have to add these emissions to its climate balance sheet, the agency said.
But it is not clear whether all of the gas in the lines would actually be released into the atmosphere. Methane is also consumed by ocean bacteria as it heads through the water column.
3. How does that compare to previous leaks?
The largest leak ever recorded in the U.S. was the 2015 Aliso Canyon leak of roughly 90,000 tons of methane over months. With the upper estimates of what might be released in the Baltic more than twice that, this week’s disaster may be “unprecedented,” said David McCabe, a senior scientist with the Clean Air Task Force.
Jeffrey Kargel, a senior scientist at the Planetary Research Institute in Tucson, Arizona, said the leak was “really disturbing. It is a real travesty, an environmental crime if it was deliberate.”
4. Will this have a meaningful effect on global temperatures?
“The amount of gas lost from the pipeline obviously is large,” Kargel said. But “it is not the climate disaster one might think.”
Annual global carbon emissions are around 32 billion tons, so this represents a tiny fraction of the pollution driving climate change. It even pales in comparison to the accumulation of thousands of industrial and agricultural sources of methane that are warming the planet.
“This is a wee bubble in the ocean compared to the huge amounts of so-called fugitive methane that are emitted every day around the world due to things like fracking, coal mining and oil extraction,” said Dave Reay, executive director of the Edinburgh Climate Change Institute.
Lauri Myllyvirta, lead analyst at the Centre for Research on Energy and Clean Air, said it was roughly comparable to the amount of methane leaked from across Russia’s oil and gas infrastructure on any given working week.
A leak was reported near the Nord Stream 2 pipeline off the coast of Denmark’s Bornholm island | Danish Defence Command
5. Is the local environment affected?
While the gas is still leaking, the immediate vicinity is an extremely dangerous place. Air that contains more than 5 percent methane can be flammable, said Rehder, so the risk of an explosion is real. Methane is not a toxic gas, but high concentrations can reduce the amount of available oxygen.
Shipping has been restricted from a 5 nautical mile radius around the leaks. This is because the methane in the water can affect buoyancy and rupture a vessel’s hull.
Marine animals near the escaping gas may be caught up and killed — especially poor swimmers such as jellyfish, said Rehder. But long-term effects on the local environment are not anticipated.
“It’s an unprecedented case,” he said. “But from our current understanding, I would think that the local effects on marine life in the area is rather small.”
6. What can be done?
Some have suggested that the remaining gas should be pumped out, but a German economy and climate ministry spokesperson on Wednesday said this wasn’t possible.
Once the pipeline has emptied, “it will fill up with water,” the spokesperson added. “At the moment, no one can go underwater — the danger is too great due to the escaping methane.”
Any repair would be the responsibility of pipeline owner Nord Stream AG, the Germans said.
7. Should they set it on fire?
Not only would it look impressive, setting the gas on fire would hugely slash the global warming impact of the leak. Methane is made of carbon and hydrogen, when burned it creates carbon dioxide, which is between 30 and 80 times less planet-warming per ton than methane. Flaring, as it is known, is a common method for reducing the impact of escaping methane.
From a pure climate perspective, setting the escaping methane on fire makes sense. “Yes, definitely — it will help,” said Piers Forster, director of the Priestley International Centre for Climate at the University of Leeds.
But there would be safety issues and potential environmental concerns, including air pollution from the combustion. “With land — in particular the inhabited and touristic island of Bornholm — nearby, you would not venture into this,” said Rehder.
No government has yet indicated that this is under consideration.
8. How long will it last and what next?
“We expect that gas will flow out of the pipes until the end of the week. After that, first of all, from the Danish side, we will try to get out and investigate what the cause is, and approach the pipes, so that we can have it investigated properly. We can do that when the gas leak has stopped,” Danish Energy Agency director Böttzauw told local media.
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