Pullback on Nasdaq as investment value titan predicts bubble burst is imminent

Beijing time on January 22, the three major U.S. stock indices extended their declines in the last trading day of the week, with technology stocks and blockchain sectors retreating sharply.

Among them, the S&P 500 index closed down 84.79 points, or 1.89%, on Friday, hitting a low of 4397.94 points. The week's cumulative decline of 5.7% was the largest single-week decline in 22 months since March 2020, the worst single week since the outbreak of the epidemic in Europe and the United States, and the longest losing streak since September 2020 with three consecutive weeks of declines.

The Dow also fell for three consecutive weeks, closing down 450.02 points, or 1.30%, at 34,265.37 on Friday, a cumulative decline of 4.6% for the week and also the worst single-week performance since October 2020.

The Nasdaq fell for four consecutive days, closing down 385.10 points, or 2.72%, for a cumulative decline of 7.6% for the week, the worst single-week performance since October 2020, and was at a seven-and-a-half-month low of 13,768.92 points. It was also the first time since June 9, 2021 that the Nasdaq closed below 14,000 points, down more than 14% from a new high of 16,057.44 points in mid-November 2021.

Tech giants lead selloff as main cause of Waterloo

On Thursday alone, Netflix, the world's largest video streaming giant, plunged nearly 20 percent on weaker-than-expected subscriber growth and weak growth in its streaming business in its fiscal 2021 fourth-quarter earnings report.

Looking at Netflix's subscriber growth, there are also ceiling concerns. For example, Nifty's most mature markets, the U.S. and Canada, have seen subscriber growth slow in recent quarters.

In the fourth quarter of 2021, Nifty added 1.19 million subscribers in the US and Canada. Revenue in the US and Canada was $3.309 billion in Q4 2021, accounting for half of Nifty's revenue. on January 14, 2022, Nifty raised membership prices again in the US and Canada.

After membership growth in the home base became slower, Neflix focused on other markets around the world. The Squid Game is a success story in the Asian market. Public data shows that Nifty currently has a penetration rate of 19% in EMEA and 11% in APAC. These countries and regions are seen as Nifty's next growth point.

However, in global markets outside of North America and Canada, Nifty has already reaped a wave of dividends during the 2020 epidemic, with an increase of 36.61 million paid Nifty members in the full year 2020 alone. In contrast, for the full year 2021, Nifty's global paid subscriber growth was more than 10 million. 2021 saw the lowest subscriber growth rate in the past five years.

At the end of the fourth quarter of 2021, Netflix had a total of 221.84 million global paying subscribers. "Now it looks like it will be hard to grow high even after the foreign streaming market breaks 200 million members. Just like it is difficult to grow rapidly after the number of domestic Akiyip and Tencent video members break through 100 million." The above brokerage analysts told reporters.

Because of this, Nifty is expected to increase 2.5 million subscribers in the first quarter of 2022, significantly lower than analysts' expectations of an increase of 6.26 million, making the market more pessimistic.

In addition, the U.S. chip sector fell heavily on Thursday resulting in a cumulative decline of more than 10% this week, refreshing the largest single-week decline in the past two years.

Then again, the interactive fitness platform Peloton also hit investor confidence hard.

As previously mentioned by Wall Street News, according to CNBC, internal documents on Thursday said Peloton would suspend production of bikes and treadmills. Peloton shares fell 24% on the day after the news was released. Although the stock later rebounded on Friday after the company responded that the news was untrue, it doesn't change the fact that Peloton has fallen 14 percent for the week and is already below its IPO offering price.

Two seemingly unrelated companies, the world's largest video streaming platform and an online fitness platform known as the "Apple of Fitness," are "working in tandem" to cause extreme concern among investors.

And IBM, Microsoft and Intel, which will announce their quarterly earnings next week, have also been placed in the same "danger zone".

"Back-to-Normal Life" Dampens Tech Stock Outlook

Although the Omicron wave has not yet subsided in many European and American countries, fears of this new strain have receded considerably.

On January 19, Prime Minister Johnson announced that the UK will soon end its Plan B program, which has been in place since December, and that all vaccination measures, including mask mandates, work-at-home and vaccine passes, will be lifted, possibly effective next Thursday.

On Jan. 20, the Wall Street Journal quoted U.S. health officials and epidemiologists as saying that the new crown epidemic is showing signs of slowing down in some parts of the country, such as the beginning of a decline in new crown hospitalizations in the Northeast.

Also on Jan. 20, Fauci, the Biden administration's chief medical adviser, expressed "optimism. He said the probability of a person re-infecting with omicron is low, at least in the short term. The number of cases has fallen sharply in the United States, where omicron infections first appeared.

The data prove that the average number of new cases per day in the United States over the past seven days is about 750,000, which is already down 5% from the previous week.

In "normal" life, people do not need to spend a lot of time living and working at home, outdoor activities will be greatly increased, the consumer demand for electronic products will also be reduced.

And these home demand decline and the technology sector and many branches of the corresponding one by one.

This explains why Nifty expects new subscribers to plummet in the first quarter of this year, Peloton, an at-home fitness platform, will fall more than 70% in three months, and agencies expect sales of consumer electronics such as PCs to likely slow down.

On Thursday, analysts at asset management firm Piper Sandler downgraded their rating on AMD (118.81, -3.08, -2.53%) to "hold" from "buy" based on future trends in computer sales.

Although these technology companies are trying to attract attention, for example, Nifty released 157 movies, new series and new seasons of existing series last quarter, a 20% increase in the number of original content released over the same period last year.

There was no shortage of multiple hits like Red Notice and Don't Look Up, but it still wasn't enough to attract millions of new subscribers, and it wasn't enough to meet investor expectations.

Legendary U.S. stock investor issues warning

Jeremy Grantham, the founder of hedge fund GMO and a renowned value investor, is known for his value investing.

In his five-decade career, he has "escaped" from major investment bubbles several times, including a decisive exit from the Japanese stock market before it burst in 1987 and a prediction of the subprime crisis in 2006.

Back in early 2021, Grantham issued a very pointed warning.

（The bursting of the huge, epic bubble (in U.S. stocks) will be the biggest investment failure of many people's lives.

Yet in 2021, as the Federal Reserve and numerous central banks worked together to stabilize the market, not only did the risk market not collapse, but drove its prices to record highs that year, while GMOs suffered massive redemptions and huge losses, which was a shame for Grantham.

On January 20, legendary U.S. stock value investor Jeremy Gratham publicly stated that U.S. stocks were on the verge of a historic crash. Even if the Federal Reserve intervenes, U.S. stocks will inevitably plunge nearly 50%.

In a letter to investors released Thursday, Gratham issued a stunning prediction: the U.S. stock market is in a "super bubble", the bubble has reached its final stage. The S&P 500 will fall about 45 percent from its current price to the level of 2,500 points.

Grantham in an interview with Bloomberg once said: "A year ago I am not very accurate grasp of the current market bubble, compared to the previous grasp of the Japanese stock market, the 2000 technology bubble or the 2007 real estate bubble, I thought it was very likely but not very sure. Today, however, I am almost certain that we are in the midst of the fourth super bubble in 100 years." He believes U.S. stocks are about to fall into a crash similar to the Great Depression of 1929, the Internet bubble of 2000 and the financial crisis of 2008.

The first burst of the super bubble came last February, when dozens of the most speculative stocks began to fall and the riskiest assets began to contract.

Cathie Wood's ARK Innovation ETF has fallen more than 52%. In addition the Russell 2000, a mid-cap index that typically outperforms in bull markets, has lagged the S&P 500 in the last year. In fact, many stocks that reflect the Fed's liquidity have plunged, with few exceptions.

Grantham says the sign of a super bubble is a rapid rise in equity asset prices to two to three times the average pace of the overall bull market, and this acceleration period is right around 2020-February 2021, during which time the Nasdaq is up 58% from the end of 2019.

Seasoned professionals know the market is overpriced, but for business reasons feel they must keep dancing.

In addition, Grantham highlighted the "crazy investor behavior" that can occur late in a bubble burst: the buying frenzy of electric car stocks, the rise of meaningless cryptocurrencies like dogcoin and NFT, and more.

"Today in the United States, we are in the midst of the fourth super bubble in the last 100 years," Gratham said. He didn't specify when he expects the bubble to burst - only that markets are now in the later stages of the super bubble process, which makes them vulnerable to sharp declines at any time.

Grantham believes we are now in a "bull vampire phase," responding to questions about his bearish view for 2021.

In the bull vampire phase, you put everything you have into it. Although the outside world stabbed it with the new crown epidemic, shot it with the end of QE and interest rate shock, and hurt it with unexpectedly high inflation, it did not want to be affected as before, but continued to fly.

Yet even if you think it will be immortal forever, it will eventually die, and the sooner the better for everyone.

"The signal for this super bubble through its various stages has now arrived, and the madness can begin at any time."

"When pessimism returns to the market, we will face the biggest potential wealth drop in U.S. history," he said.

Targeting emerging markets As the bubble is about to "burst," Grantham advises.

Sell U.S. stocks now and buy lower-valued Japanese and emerging-market stocks, along with some gold and silver to protect against inflation, and wait until U.S. stocks are attractively priced again before allocating assets.