The Stock Market Splits

I am a price analyst who rides waves and trends – they come and go. I try not to ask too many questions. Sometimes it gets me into trouble but for the most part trends steer me in the right direction. We take hits, but we bounce back. This year’s ride has been one full of despair, excitement, and then, wonder. All those emotions need to be kept in check so sometimes we must fly against the prevailing wind.

The recent stock market rally has fascinated me as it has occurred so quickly after the Black Swan event of Covid. This is the ‘unexpected’ rally. The market should be a shudder but it’s not, it’s been flying. Are we looking in the wrong direction? Perhaps. Covid is looking more and more like a blip for the stock market. It will pass we just don’t know when. Stocks are piling on the gains, or at least some are. This looks like big picture stuff to me and it’s not for the wimps. Steel yourself come what may. Now the US market is back at its highs, alas not for us, but there are good reasons why and we’ll get to that shortly, but AMZN, GOOG, MSFT, AAPL and FB have all climbed into the stratosphere, and a more recent listing BABA’s market cap is already at dizzying levels and is climbing with them. Why? It’s part of a new wave and its possibly bigger and broader than just these few stocks.


Let’s look at AMZN. The chart above shows the price at $100 in 1999, falling to $6.00 in 2000. The Internet bubble, I told you so! And of course, they were right eyeballs are not enough there has to be some substance to support a stock price like real earnings. That revolution began 20 years ago and now it’s coming to fruition. During this last Covid ‘tank’ AMZN fell 16% and has since risen about another 90%. We know why but the distance travelled seems remarkable. Artificial Intelligence is a big player here and its forces are spreading. Old news maybe but perhaps there’s more to this story. There is a two-speed economy and there are also two speed stocks. The pandemic has perpetuated the acceleration of some stocks while others flounder, having hit a wall. Some survive purely by sucking on the liquidity lifeline. But you would think not for long. So, what’s happening and is there a giant lurking beneath our levitating stock markets? Remember the stock market does have a crystal ball into the future and since 2009 the Nasdaq has made some fancy gains.

Here is some food for thought. Alan Kohler recently interviewed Catherine Wood from ARK Investment Management in his Eureka Report. Now Alan Kohler is a hard head to turn unless there is some substance there. He is a convert. What we have seen bubbling around us is perhaps slowly turning into a reality. The article is worth reading but briefly outlined there are five foundations of a new world we are heading into and traditional companies are in trouble if not already. The banking sector for one as fintech’s nibble and bite at their ankles especially overseas. Our banks, who artificially supported by us the taxpayers, might last longer as they retreat from crocodile like advances. Snap, snap! Wealth gone; Insurance gone. So long the vitality and the dominance of market capitalisations on our stock market. They were big but their power is waning however they seem smart enough to be catching on to this new low-cost digital offering and they may yet reinvent themselves. CBA, and to a lesser extent ANZ, are trying to build that profile. We’ll watch this space.

The five stocks mentioned above headed by AMZN command 25% control of the stock market by market capitalisation. Alibaba also now sneaks into the top 5 displacing FB.

The graph below shows a changing market capitalisation lanscape from 1999 to 2019.An extraordinary change from 2014 to 2019 and 2020 has propelled that change even further.

The contagion may spread and as the combined advances of technology and biotech collide, they are ready to take control of our lives. You may say they have already come of age, but I think what we have seen is the only tip of the iceberg with many stocks yet to get in our faces. The Internet, although vital for keeping communication lines open is passé in the light of what new developments are playing out. It’s merely become a doormat.

Catherine Wood provides some structure and clarity to these developments and outlines five foundations for the many new technologies:

  1. Artificial Intelligence – Internet is ho hum now. When combined with AI however the effectiveness and cost benefits are enormous.
    (A small example – I Swim in the Melbourne bay to keep fit and in these freezing mornings you need a swimming cap, or your head feels like splitting. My swimming friends have been supporters of for all their swimming gear so I ordered a swimming cap. Two months later I’m still waiting. Finally Wiggle admits defeat, I am offered a refund of they will send me a replacement. Great! So, I turned to Amazon, ordered and paid for the cap, and two days later it is in my letterbox. Even during a Covid lockdown they found me – quickly. Hmm still waiting for that refund from Wiggle and my friends are still waiting for their caps. They’re jealous. Guess what they’re going to do. You don’t get many chances in this world. And that describes very simply the way the monolith wins and then wields its growing power. I am a convert. And why wouldn’t I be, they did what they said they would, and I am a happy customer. They are building their AI database on who I am and what I do, their knowledge of me will grow and their AI will hunt me down and force me to purchase more because I now love them, trust them, and will support them. Deal done Amazon – Sorry Wiggle you’ve lost me forever. That’s how it seems to go these days)
  2. Robotics – Mundane ‘toils’ automated at a huge cost benefit to businesses.
  3. Energy storage. On the one hand there is Tesla and the other there is crude. Cost, cost, cost. Metals like cobalt, lithium, nickel, copper will be the big beneficiaries and crude will continue to suffer declining demand
  4. DNA Sequencing – Our ‘new’ doctors
  5. Time, accuracy, reliability and cost. New functionality and currencies that will circumvent the power of certain businesses and the banks. Is the ASX about to become a technology stock? Let’s watch that share price.

None of this is today but it tickles the sides of the potential, and it’s coming – in waves and new stocks are emerging in these fields some of which are mentioned in Catherine Woods interview.

Most of these ‘platforms’ have been bubbling around for years but now a head of steam for some of these platforms is building and developing offering some new and unique opportunities. In Australia it is in its infancy compared to countries like the US and this measurement clearly explains the split in our market performances. But that’s not to say it won’t happen in various ways and our resource base is likely to benefit. The world needs energy storage. Mesoblast was reviewed recently by Stockradar and has a confluence of three unique opportunities coming up, either one of which could propel the stock higher and the excitement is already building as it its price profile. There are other budding minnows on the radar that will start pushing into our ASX/200. In the US however whether it be Tesla rocking the energy storage business and threatening crudes dominance as well as dominating car sales in the US, or the DNA sequencing technology threatening the ‘treat the symptoms’ medical business to one of ‘prevent the cancer’ though DNA learning thus instead of seeing our ‘doctor’ for cures we will be popping into the geneticists every year or two for identification and prevention at very early stages simply by a DNA sequencing profile. Are you likely to get….. ?

Not only are the advances amazing but the accompanying cost benefits too will be enormous and that will be a key driver for success. In part this is what our banks are being forced to adjust to. “Recession might be coming but climate change isn’t going away’. Just as there will be stock market corrections along the way and some will be big and some small. Covid is probably a blip on the radar but there is also a wave of drivers ready to take us into a brave new world.

Exciting times and challenges lie ahead. Picking the right stocks at the right time has always been the challenge I love and as long as long as they are climbing towards the relative safety of the ASX/200, and if they’re on my radar, I’ll hit them.  Many bubbling minnows lie outside the ASX/200 and my data universe so I’m not crazy enough to think I’ll get them all but if I can get a few at the right time and at the right price it will make me happy and hopefully profitable. I’m looking for my own little Amazon.