The mayhem that has totally crushed one stock after another for a year breaks through the surface.
By Wolf Richter. This is the transcript of my podcast of last Sunday, THE WOLF STREET REPORT.
This stock market – meaning the stock jockeys, the trading algos, the hedge funds, and what is generally called Wall Street – was just brutal about how it pushed one stock after another to ridiculous highs after the Fed’s money-printing scheme flooded the land with liquidity, and the over-liquified crowd swooped in on any and every meme, no matter how ridiculous, and caused these stocks to spike by 200%, 300%, 1,000% and more, in the shortest amount of time.
And then in February 2021, one after the other, each on its own particular schedule, these stocks were abandoned and came unglued in bits and pieces, and by now their prices have collapsed by 60%, 70%, 80% and over 90%, from their respective spikes. These are well-known names.
What we’re looking at is how the greatest stock market bubble ever is coming unglued stock by stock, rather than all at once.
All these stocks that spiked by 200% or 500% or 1,000% were hyped out the wazoo, often in the social media, and their prices spiked in the shortest time, often multiplying in days. This craze started in March 2020, and peaked in February 2021, and then came unglued.
Nearly all the recent IPOs and all of the companies that merged with SPACs to go public have lost huge amounts of money, even in businesses where everyone else is making tons of money, such as used-car dealers.
Two standout used-car dealers that consider themselves tech companies and went public, Carvana and Vroom, soared to huge valuations despite losing enormous amounts of money – while other dealers made tons of money.
But then the big S hit the fan and the shares of both collapsed: Vroom by 92% from their peak in September, and Carvana by 60% from their peak in August.
The EV startups that went public via IPO or merger with a SPAC – most of them had huge and inexplicable spikes in share prices and then collapsed by 60% to over 90%. Others collapsed right out of the gate.
Then there are the real estate house-flipper stocks, Zillow, Opendoor, Redfin, and real estate broker Compass, which IPO’ed 10 months ago. All of them collapsed by 65% to 78% from their highs. Compass collapsed right out of the gate. Every one of these companies is losing a huge amount of money in one of the hottest industries, real estate, during the hottest housing market ever.
The Renaissance IPO ETF, which tracks the biggest stocks that had their IPOs over the last two years, is down 42%.
Zoom Video is down 72%, Airbnb is down 30%, Peloton is down 83%, Chewy is down 65%, Moderna is down 70%. There are hundreds of these stocks that got hugely hyped from March 2020, and they spiked into the stratosphere, and then they got abandoned, and the bloodletting in these stocks is gigantic.
Then they’re the spikes and collapses in stock prices of mundane companies. We’re talking about rental-car companies, theater chains, mature software makers, chip makers, we’re talking about well-known names.
For example, the shares of Avis, the largest rental-car group in the US, after surging 70% in September and October, suddenly spiked from $170 to $545 a share all at once, bringing the total 10-month spike to 840%. And then the shares collapsed, and on Friday were at $180, down 67% from their spike four months earlier.
This whole Avis story is just insane. It shows how nuts these stock jockeys and trading algos had become, jumping on anything and everything, and driving the price into the stratosphere without rhyme or reason, and then dumping them into the lap of… well whoever ended up with it, probably retail investors, directly and indirectly.
But these same retail investors with their trading apps, and ganging up in the social media, are in part responsible for these ridiculous spikes as they suddenly converge on something like Avis, and then, oops.
This mayhem reminds me of the beginnings of the dotcom bust. But during the dotcom bust, most of the stocks plunged all together nearly in lockstep, and pulled down the overall indices.
What we’ve had for the past 12 months is individual action in bits and pieces, one after the other, while the biggest stocks were still surging, and while some smaller stocks still spiked.
But by the end of November 2021, there were so many of these collapses of individual stocks that even the biggies got the downdraft, and the Nasdaq started heading lower, and the big tech stocks started heading lower. And on the second trading day of 2022, the S&P 500 and the Dow started heading lower, which is when the unwinding of the greatest stock market bubble ever broke the surface for all to see.
The collapse of hundreds of smaller stocks wasn’t enough to break the surface until the biggest stocks fell in line.
Tesla is now down 32% from its November peak. Facebook – I mean, Meta Platforms – is down 45% from its peak in September. Amazon is down 18% from its peak in July. Salesforce.com and Nvidia are both down 33% from November. Netflix is down 44% from November.
Microsoft is down 15% from the November peak. I must admit, the CEO of Microsoft, with absolutely impeccable and admirable timing, sold half his Microsoft shares on November 22, at prices that were right at the peak.
From where he sits, and what he sees, and what he hears, he must have known what’s coming, and he dumped half his Microsoft holdings. Ladies and gentlemen, this is how capitalism is supposed to work. And those who bought them at those prices from the CEO – overenthusiastic retail investors that had swallowed the hype hook, line, and sinker? – are now down 15%.
The whole thing is still propped up by Apple, which is down only 10% from its peak, which occurred on the first trading day in January, which, given Apple’s huge weight in the S&P 500 Index, was also the peak for the S&P 500, which is down 9% now, after the two huge rally days on Thursday and Friday.
All this has played out with breath-taking volatility this year, with whiplash-inducing intraday swings, and dizzying rallies and blistering drops.
Despite the huge rally on Thursday and Friday, the Nasdaq is down nearly 16%. But this is still the relatively calm surface of the stock market. Beneath the surface, there has been absolute mayhem.
These stocks should have never spiked. They should have never surged to these ridiculous highs. And the return to earth is just a return to reality.
Take Tesla. So this is an EV maker that actually makes money, and actually sells a large number of vehicles. But Tesla is an automaker – not some kind of miracle tech. And eventually it will be priced like an automaker. As a fast-growing automaker, it can have a higher PE ratio than some slow-growth legacy automakers, as long as it grows fast.
But it’s ridiculous to assume that Tesla should be worth as much as the 10 most valuable global automakers combined, when it has only 1.5% of the global market. But that’s precisely where it was in November 2021. This was just totally nuts.
But that nuttiness is now unwinding amid a huge bout of volatility and enormous bloodletting in individual stocks, stock by stock.
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