The current sell-off may end up emboldening the bulls, if the last tech bubble is a guide


The bubble isn’t burst yet.


Justin Edmonds/Getty Images

Traders at the moment seem to have as much patience with tech stocks as Kansas City Chiefs fans do for a moment of unity.

Thursday was the fourth ugly finish in five sessions, with the Nasdaq Composite
COMP,
-1.99%

skidding 2%, and the other major indexes backtracking as well.

Andrea Cicione, head of strategy at independent investment research firm TS Lombard, said excessive leverage in the market really began in earnest in July. Cicione added that was occurring in U.S. stocks wasn’t happening anywhere else in the world.

And while he’s seeing signs of a bubble, he thinks if the selling doesn’t intensify, the bubble may reflate soon.

“The leverage accumulation so far may not be enough to burst the bubble just yet,” he writes. “If the recent selloff does not intensify further, the whole episode may end up simply emboldening the bulls to buy the dip and take even more risk.”

Between 1997 and 1998, the Nasdaq experienced three sell-offs of at least 17%, only to emerge stronger and rise four-fold to the 2000 peak. “Leverage is a key characteristic of all bubbles, and almost invariably it is the mechanism that leads to their collapse. But there may not have been enough leverage for the dot-com 2.0 bubble to burst just yet,” he says.

The reason leverage is important in bursting bubbles is because it uniquely can lead to forced unwinding. “When faced with margin calls they cannot meet, investors may have to liquidate positions against their will. The resulting fall in prices can instil doubts in the mind of others, persuading them to sell,” he said.

The buzz

Consumer price data for August is due at 8:30 a.m. Eastern.

The quarterly services survey and August budget deficit are also due for release. The Congressional Budget Office, which typically gets the budget picture pretty close to the mark, estimated the August deficit was $198 billion, and said the September-ending fiscal year gap will be the highest relative to the economy since 1945.

Database software giant Oracle
ORCL,
+0.66%

topped earnings and revenue expectations, helped by revenue from key client Zoom Video Communications
ZM,
-1.32%
.
Oracle also declined to discuss whether it will buy the U.S. operations of social-media company TikTok, as U.S. President Donald Trump said Thursday there will be no extension of the Sept. 15 deadline for it to be sold to a U.S. company or shut.

Peloton Interactive
PTON,
-3.75%
,
the exercise bicycle company, reported stronger-than-forecast fiscal fourth-quarter earnings and revenue, with its current year outlook also well ahead of estimates.

Jean-Sébastien Jacques, the chief executive of mining giant Rio Tinto
RIO,
-1.67%
,
announced he will resign in March following the controversy over the firm blowing up ancient caves while excavating for iron ore.

Thursday marked the first day since spring when new coronavirus cases in the European Union and the U.K. exceeded the United States.

The market

U.S. stock futures
ES00,
+0.65%

NQ00,
+0.64%

were stronger.

Gold futures
GCZ20,
-0.46%

fell while oil futures
CL.1,
+0.21%

edged higher.

The British pound
GBPUSD,
+0.18%

continues to reel from its more combative stance taken against the European Union in trade negotiations.

The chart

This incredible UBS illustration of Tesla
TSLA,
+1.38%

shows how shares have performed compared to other tech giants since joining the $100 billion market cap club. It took Apple
AAPL,
-3.26%
,
Alphabet
GOOGL,
-1.36%

and Facebook
FB,
-2.05%

between 4 to 11 years to achieve what Tesla did in three quarters. UBS increased its Tesla price target to $325 from $160 ahead of the company’s battery day presentation.

Random reads

Here’s the 2010 memo from a venture capital firm on an investment which valued retail software maker Shopify at $25 million. Shopify
SHOP,
-1.59%

is now worth $114 billion.

China said its U.K. ambassador’s Twitter account was hacked — after a steamy post was liked.

An experimental treatment kept mice strong in space, one that could have uses back on Earth.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.



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Biden talks up his plans to boost U.S. manufacturing as he visits Michigan


Democratic presidential nominee Joe Biden arrives at Detroit Metro Wayne County Airport on Wednesday.


AFP via Getty Images

Joe Biden on Wednesday gave a speech in Michigan about what his campaign described as “his plan to ensure the future is Made in America by all of America’s workers,” as the Democratic presidential nominee continued an effort to counter President Donald Trump’s “America First” stance.

Biden talked up his “Made in America” tax policy that his campaign had rolled out earlier in the day, noting features such as a new offshoring tax penalty and a 10% tax credit for companies making investments to create jobs for American workers.

The Democratic challenger also promised executive actions in his first week as president that ensure the federal government isn’t shirking on pledges to “Buy American.”

“I don’t buy for one second that the vitality of American manufacturing is a thing of the past,” he said. Biden also said the Republican incumbent “hasn’t stopped companies from closing plants and sending jobs overseas,” but instead has “rewarded companies that have cut jobs and failed to invest here at home with billions in tax breaks.”

Opinion: The pandemic revealed the cracks in U.S. manufacturing — here’s how to fix them

Biden has addressed boosting domestic manufacturing before, such as by making a July proposal for a $700 billion “Buy American” campaign.

As he spoke in Warren, Biden also blasted Trump in the wake of well-known journalist Bob Woodward’s new book saying that the president knew the coronavirus was “deadly stuff” but wanted to “play it down.” The Democratic challenger said that was “a life-and-death betrayal of the American people.”

The Trump campaign attacked Biden’s latest moves before the Democratic challenger’s speech.

“It’s fascinating to me that Joe Biden is suddenly trying to masquerade as an economic nationalist,” Steve Cortes, a senior adviser for Trump’s re-election campaign, told reporters during a conference call on Wednesday. “Welcome to the party, but unfortunately you have no credibility, because you’ve been acting in exactly the other direction for nearly a half century.”

The Trump team often has criticized Biden for his 1994 vote as a U.S. senator for the North American Free Trade Agreement, or Nafta, which now has been replaced by the U.S.-Mexico-Canada Agreement, or USMCA.

Trump is due to make his own visit on Thursday to Michigan, a key swing state, with a trip to Freeland.

Meanwhile, a United Auto Workers branch in Flint, Mich., representing General Motors
GM,
-0.60%

employees praised Biden ahead of his visit to their state, saying in a video that he “had their backs” amid the 2008 auto bailout. Unions for steelworkers and machinists also issued statements expressing support for Biden or criticizing Trump’s record on aiding U.S. manufacturing.

In a RealClearPolitics moving average of polls focused on top swing states that are likely to decide the election, Biden on Wednesday had an edge of 3.7 percentage points over Trump. Betting markets were giving the former vice president a 53.2% chance of winning vs. Trump’s 45.8%.

The S&P 500 index
SPX,
+2.41%

and the Dow Jones Industrial Average
DJIA,
+2.13%

were recently trading higher on Wednesday, rebounding after a three-day selloff led by the tech sector.



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Millennials to redistribute wealth from older generations to the young in new ‘age of disorder’, warns Deutsche strategist


It probably won’t take a great deal of persuasion to convince investors that there’s an “age of disorder.”

That’s the title of a new Deutsche Bank research note, which says the world is entering its sixth distinct era of modern times.

So say goodbye to the “era of globalisation” and brace yourself for the “age of disorder” where millennials, firmly established as the generation of ‘have nots’, take their revenge and redistribute wealth from the old to young. Millennials are usually defined as those between the ages of 22 and 38 years old in 2019, according to Nielsen Media Research .

The note by strategist Jim Reid warns the discussion of inequality within and between countries will not be limited to wealth and income.

“In fact, an issue that is quickly emerging as a political force is the intergenerational gap,” the report says. “Assuming life does not become more economically favourable for Millennials as they age (many find house prices increasingly out of reach), this could be a potential turning point for society and start to change election results and thus change policy.”

Read: Millennials’ shifting tastes are boosting sales of whiskey and tequila

The votes for Brexit in the U.K. and President Donald Trump in the U.S. in 2016 left many younger people feeling angry and alienated by political decisions that a sizable majority of them were against, the report says.

This could see the revenge of the millennials as they take more control and skew policies to redistribute wealth away from older generations to the young.

“Such a shift in the balance of power could include a harsher inheritance tax regime, less income protection for pensioners, more property taxes, along with greater income and corporates taxes . . . and all-round more redistributive policies”, the Deutsche Bank report said.

The ‘new’ generation might also be more tolerant of inflation insofar as it will erode the debt burden they are inheriting and put the pain on bond holders which tend to have a bias towards the pensioner generation and the more wealthy.

“The older generation may also have to be content with lower (or even negative) asset price growth if the younger generation does not have a sudden income boost. This will be a big break from the status quo and lead to far more disorder than in the prior era of globalisation.”

Read: Gen Z, Millennial Investors Embrace Risk Amid Covid: E*Trade

The report suggests 2020 may be the start of a new era, as the coronavirus pandemic brings the era of globalization since 1980 to a close.

“The era of globalisation to we are likely waving goodbye saw the best combined asset price growth of any era in history, with equity and bond returns very strong across the board. The Age of Disorder threatens the current high global valuations, especially in real terms,” said the report.

What will this new age bring?
• Deteriorating US/China relations and the reversal of unfettered
globalisation.
• A make-or-break decade for Europe, with muddle-through less likely
following the economic shock of COVID-19.
• Even higher debt.
• Inflation or deflation? As a minimum, it is unlikely it will calibrate as easily as we saw over the last few decades.
• Inequality worsening before a backlash and reversal takes place.
• The intergenerational divide also widening before millennials and younger voters soon start having the numbers to win elections and, in turn, reverse decades of policy.
• Linked to the above, the climate debate will build, with more voters
sympathetic and thus creating disorder.

We’re in the midst of a technology revolution with astonishing equity valuations reflecting expectations for a serious disruption to the status quo, the report says, questioning whether this is a revolution or bubble?
Much depends on whether working from home becomes more permanent, and if so it predicts it will cause major changes to societies and economies.

Tesla
TSLA,
-21.06%
,
Amazon
AMZN,
-4.39%

and Facebook
FB,
-4.09%

are all companies that have seen their valuations soar in recent times on Nasdaq
COMP,
-4.11%
.

Read: Opinion: China’s economy may be back on track, but problems plague it elsewhere

The most worrying prediction is an economic battle between the U.S. and China.

“The result of the US election in November is unlikely to change the direction of travel,” the report says. “Over the course of this decade, relations will likely deteriorate into a bipolar standoff as both the US and China seek to prevent encirclement by the other. Companies that have embraced globalisation will be stuck in the middle if relations sour as we fear.”

There have been 16 occasions over the last 500 years, when a rising power has challenged the ruling one, and on 12 occasions it ended with war. One piece of solace is the report notes that military conflict is unlikely.

Watch: Donald Trump suggests ‘decoupling’ US economy from China



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New China ban threat puts U.S. chip-equipment makers at forefront of tech stock rout



MARKETWATCH PHOTO ILLUSTRATION/ISTOCKPHOTO

Chip equipment makers led technology stocks lower Tuesday following reports that U.S. sanctions could spread to businesses like Semiconductor Manufacturing International Corp., China’s largest chip fabricator.

Shares of KLA Corp.
KLAC,
-7.74%
,
Lam Research Corp.
LRCX,
-6.86%
,
and Applied Materials Inc. AMAT all fell more than 6% as U.S. stock markets opened on Tuesday following Labor Day holiday weekend, while the PHLX Semiconductor Index SOX was down nearly 3%.

Over the weekend, reports surfaced that SMIC could be added to a U.S. “entity list” like telecom equipment maker Huawei back in May. On Monday, when U.S. markets were closed, SMIC
981,
+3.07%

shares dropped more than 20% in Hong Kong trading.

Meanwhile, the U.S. tech-heavy Nasdaq Composite Index
COMP,
-2.33%

was down 2.6% and the S&P 500 index
SPX,
-1.50%

was off 1.8% Tuesday.

Investors may be worrying that SMIC is just another one of many Chinese companies to get added to the list, given President Donald Trump’s recent bellicosity toward Chinese-owned apps TikTok and WeChat .

“Will the Trump Administration stop with only Huawei and SMIC?” speculated Evercore ISI analyst C.J. Muse in a Tuesday note. “Hard to say,” he said, warning that other chip makers in China could be next. Should the potential ban be limited to SMIC, then chip-related stocks have been oversold, Muse said.

Tech stocks have been getting battered since last week, when the tech sector gave up in two sessions at least half of seven week’s worth of gains from a strong earnings season .

Morgan Stanley analyst Joseph Moore said adding SMIC to the list “certainly would be a negative impact to our semiconductor capital equipment coverage”. Moore noted that SMIC had plans of spending $6.7 billion in capital equipment this year alone.

“The bigger issue is that the China risk factor for semiconductor capital equipment continues to grow, as U.S. Commerce Department actions continue to impact new areas,” Moore said.

Susquehanna Financial analyst Mehdi Hosseini took a much less fearful view of the development, remarking that “policy has also proven a double edged sword as efforts of the past few years in isolating China have not really proven a winning strategy”.

Hosseini said “with secular trends suggesting a bright future for chip consumption and thus [semiconductor capital equipment], especially as more of the demand shifts to cloud/commercial end markets, the pull backs caused by such headline risks can also offer a buying opportunity, in our view.



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Think twice before wearing a face shield to protect against COVID-19 instead of a cloth face mask — here’s why


Face shields are probably OK to wear to protect against COVID-19, right? Wrong.

That’s according to the latest experiment on the subject showing how respiratory droplets that could carry the virus spread while people wore a face shield and a face mask with exhale valves compared to how droplets spread from a traditional mask. College and high-school students and children in elementary schools are returning to classes — sometimes wearing face shields with a cloth mask, and sometimes without one.

In California, for instance, the Orange County Health Care Agency, the Orange County Department of Education and school districts across that county, have developed a guide to returning to school. It says face coverings are required for third-graders through high school-level students, and “strongly encouraged” for children between two years old and second grade. “A face shield is an acceptable alternative for children in this cohort who cannot wear them properly,” the guide states.


‘No burden of 100% efficacy should be placed on face shields or any containment policy because this level of control is both impossible to achieve.’


— A commentary published by JAMA Network, an open-access medical journal published by the American Medical Association

Vanderbilt University in Nashville, Tenn., among some other colleges, says it’s comfortable allowing faculty members inside classrooms to wear a face shield without a mask. But research suggests that may not be enough to prevent a teacher from spreading coronavirus, especially if he/she is asymptomatic or pre-symptomatic. (Vanderbilt did not return request for comment.)

To reduce the risk of spreading COVID-19, the disease caused by SARS-CoV-2, it may be preferable to use high-quality cloth or surgical masks that are of a plain design instead of face shields and masks equipped with exhale valves, according to an experiment published Wednesday by Physics of Fluids, a monthly peer-reviewed scientific journal covering fluid dynamics.

The journal, which was first established by the American Institute of Physics in 1958, published the study, “Visualizing droplet dispersal for face shields and masks with exhalation valves,” to illustrate how shield or mask with a valve affected the movement of droplets compared to wearing a face mask without valves. Their conclusion: It may be preferable to use high-quality cloth or surgical masks with plain design without valves.

That’s in line with what the U.S. Centers for Disease Control and Prevention has said: it recommends against using masks with valves or vents, because they can “allow virus particles to escape.” The CDC also recommends against using N95 respirators or surgical masks intended for healthcare workers.

“We focused on the smaller droplets, since they can stay suspended for very long times and might contain enough virus particles to transmit COVID-19,” said Siddhartha Verma, one of the paper’s authors and an assistant professor at the Department of Ocean and Mechanical Engineering at Florida Atlantic University in Boca Raton, Fla. “Even the very best masks have some degree of leakage.”

Watch the video here.

In the experiment, face shields blocked the initial forward motion of a simulated jet of a cough or a sneeze, but the expelled droplets moved around the visor with relative ease and spread out over a large area, the experiment concluded. The experiment also suggested that droplets can pass through a mask’s exhale valve unfiltered, “which significantly reduces its effectiveness as a means of source control.”

This experiment published by Physics of Fluids, a peer-reviewed scientific journal, looks at droplet spread from face shields and face masks with exhale valves, and compares them to those of traditional cloth face masks. (Image courtesy of: Siddhartha Verma, Manhar Dhanak and John Frankenfield)

“As students return to schools and universities, some have wondered if it is better to use face shields, as they are more comfortable and easier to wear for longer periods of time,” said Verma. “But what if these shields are not as effective? You would be essentially putting everyone in a tight space with droplets accumulating over time, which could potentially lead to infections.”

Other universities won’t let students on campus without a mask and shield. The U.S. Centers for Disease Control and Prevention does not recommend face shields as a substitute for masks: “It is not known what level of protection a face shield provides to people nearby from the spray of respiratory droplets from the wearer. There is currently not enough evidence to support the effectiveness of face shields.”

The CDC has reminded people to distinguish between masks, and surgical masks. “Currently, those are critical supplies that should continue to be reserved for health-care workers and other medical first responders,” it says. “Masks also are not appropriate substitutes for them in workplaces where surgical masks or respirators are recommended or required and available.”


‘What if these shields are not as effective? You would be essentially putting everyone in a tight space with droplets accumulating over time.’


— Siddhartha Verma, assistant professor at the Department of Ocean and Mechanical Engineering at Florida Atlantic University

While face shields and masks with valves may be more comfortable than cloth masks, the CDC calls for wearing a mask that covers both your nose and your mouth, with the mask secured under your chin. It should fit snugly against your face. There should not be large openings or gaps around your nose, mouth and the sides of your face. Do not touch the mask while wearing it.

Some educational institutions are circumspect on the use of face shields. Loma Linda University, a Seventh-day Adventist health-sciences university in California, advises the wearing of face masks as the No. 1 protection against COVID-19. “Prolonged exposure reduces the amount of protection of the shield,” according to this advice from the university’s health and wellness team.

Vanderbilt University’s Public Health Advisory Task Force, in a statement on the college’s website, cited a “preliminary study” as offering sufficient evidence for the efficacy of face shields “in the way Vanderbilt intends to use them, which is coupled with other protective measures (social distancing, less density with classrooms, students wearing face masks/coverings, etc.).”

However, that preliminary study is actually “viewpoint” commentary on face shields that cites other pieces of research on face shields and the influenza virus, which is obviously different from coronaviruses. Nor does the commentary in question published by the JAMA Network offer up enough scientific evidence to show face shields are adequate.

In fact, the “viewpoint” concludes: “It is unlikely that a randomized trial of face shields could be completed in time to verify efficacy. No burden of 100% efficacy should be placed on face shields or any containment policy because this level of control is both impossible to achieve and unnecessary to drive SARS-CoV-2 infection levels into a manageable range.”

As of Friday, COVID-19 had infected 26,383,872 people worldwide, which mostly does not account for asymptomatic cases, and killed 870,477. The U.S. still has the world’s highest number of COVID-19 cases (6,164,267), followed by Brazil (4,041,638), India (3,936,747) and Russia (1,011,987), according to data aggregated by Johns Hopkins University.

In the meantime, cases keep rising in the U.S. with California becoming the first state in the country to surpass 700,000 confirmed cases; infections hit 726,018 there as of Friday with 13,493 COVID-related deaths. New York has recorded 437,107 infections and the highest number of deaths in the U.S. (32,976). COVID has killed 186,984 people in the U.S.

AstraZeneca
AZN,
-1.52%

, in combination with Oxford University; BioNTech SE
BNTX,
-3.93%

and partner Pfizer
PFE,
-0.49%

; GlaxoSmithKline
GSK,
-1.74%

; Johnson & Johnson
JNJ,
-0.72%

; Merck & Co.
MERK,
-0.95%

; Moderna
MRNA,
-5.96%

; and Sanofi
SAN,
+5.09%

are among those currently working toward COVID-19 vaccines.

The Dow Jones Industrial Index
DJIA,
-1.24%
,
the S&P 500
SPX,
-1.71%

and the Nasdaq Composite
COMP,
-2.87%

were lower Friday. Doubts about traction for further fiscal stimulus from Washington may be one factor discouraging investors who have been betting on Republicans and Democrats striking a deal to offer additional relief to consumers and businesses.





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