It’s been an interesting couple of weeks since the banking crisis kicked off with Silicon Valley Bank exploding. Quite fortunately, I had sunk a significant amount of my assets into gold stocks in mid-February. I then watched my investment shrink almost daily until SVB blew up.
After SVB blew up, Gold stocks decoupled from the stock market at large and started going up. The thinking by investors was that if the financial system is in distress that money will flee to safe assets such as Gold. And an increase in gold price will lead to more profit for gold miners.
But interestingly, Apple, Meta, and Alphabet have also fairly done well during this period of stock market volatility. What is the thinking by investors on this development? Do they think that tech companies are immune from the effects of a recession? Maybe they are?
The stock market will go down during a recession because everyone makes less money. If interest rates go up then people will buy less houses. That means people will buy less furniture. Home Depot will have lower sales. This leads to layoffs which leads to lower sales by various other companies. And so on. A big downward spiral. Home Depot, Best Buy, and Target stock prices are examples of stocks down significantly for the previous month.
So why are investors shifting money away from Best Buy and Home Depot and towards Apple or Meta?
I think it has to do with the amazing stickiness of tech in our lives. I’ve heard of people dropping their phones on train tracks and literally dying trying to get their phone back. Or when teenagers were asked if they’d rather skip a meal or skip an evening without access to the internet, they overwhelmingly choose to skip food and have access to all of their social media.
I think it’s interesting what the financial world is betting that people will cut out of their lives if their income is reduced. They are investing as if people will cut down on their groceries and physical shopping in order to NOT cut down on their access to technology and information.
Is that true? I suppose we’ll find out soon enough.
But interestingly, Apple, Meta, and Alphabet have also fairly done well during this period of stock market volatility. What is the thinking by investors on this development? Do they think that tech companies are immune from the effects of a recession? Maybe they are?
The stock market will go down during a recession because everyone makes less money. If interest rates go up then people will buy less houses. That means people will buy less furniture. Home Depot will have lower sales. This leads to layoffs which leads to lower sales by various other companies. And so on. A big downward spiral. Home Depot, Best Buy, and Target stock prices are examples of stocks down significantly for the previous month.
So why are investors shifting money away from Best Buy and Home Depot and towards Apple or Meta?
I think it has to do with the amazing stickiness of tech in our lives. I’ve heard of people dropping their phones on train tracks and literally dying trying to get their phone back. Or when teenagers were asked if they’d rather skip a meal or skip an evening without access to the internet, they overwhelmingly choose to skip food and have access to all of their social media.
I think it’s interesting what the financial world is betting that people will cut out of their lives if their income is reduced. They are investing as if people will cut down on their groceries and physical shopping in order to NOT cut down on their access to technology and information.
Is that true? I suppose we’ll find out soon enough.
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