Trump dump?

Rob Armstrong (0:06)

Pushkin. Feels like the world in the last month or so has turned upside down. We have a Republican administration that is in theory business-friendly, but the stock markets go in the wrong direction, growth expectations are falling, and markets, finance, corporations, everything is helter-skelter, opposite day and inverted. Today on the show, we're going to start swimming, so we don't sink like a stone, because the times they are changing. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong, coming to you from beautiful, unhedged world headquarters in the capital of the universe, New York City. I am joined today by world famous head of the Financial Times, Lex Column, John Foley, to discuss how strange things are and whether they can get even stranger. Hi, John.

John Foley (1:12)

Hi, Rob.

Rob Armstrong (1:13)

Well, where to begin? There's a lot of strange things out there. Here's one for you. You've written about this a bit. I've written about it a bit. It used to be the tech led the stock market. Tech sort of stinks now. Since the middle of February, not one of the Magnificent Seven is up.

This morning, we have two big tech companies reported results and are down 15, 20%. What is going on? What happened to tech, John?

John Foley (1:41)

I think there are a few things going on. One thing is that people have met people. Investors have made a ton of money on tech.

Rob Armstrong (1:48)

Megaton.

John Foley (1:49)

A ton. On the Magnificent Seven, Nvidia, $3 trillion, Palantir, not in the Magnificent Seven, probably the Magnificent Eight to Nine.

Rob Armstrong (1:58)

Yes.

John Foley (1:59)

It makes sense that when expectations change a little bit, that people decide to take some profit. And expectations certainly are changing maybe more than a little bit. Yeah. Actually.

Rob Armstrong (2:10)

Sort of general expectations, not just expectations for those companies, but for kind of the world it feels like.

John Foley (2:15)

So when you think about it, all these companies that are based on this artificial intelligence boom, at some point in the future, the idea is that people are paying for something, that someone is buying a service that they believe has some value to them. Otherwise, what's the point of all of this? And I think generalized worries about the economy and growth and how much money there will be sloshing around to buy stuff ultimately have to feed through into these long-term growth projections. And the thing about stocks is that most of the value comes from future cash flows, right? So think about NVIDIA Palantir. Probably like 80% of their value comes from stuff that happens after 2030 So you're really drawing lines out into the distant future. And if you change the trajectory of the line a little bit, you've wiped or added lots of value.

Rob Armstrong (3:00)

One thing, yeah, is when you have a lot of your value in the future, you're very sensitive to expectations as a stock, the price of your stock is. And the other thing is, when an investor is looking at their portfolio, and they've made so much money in a small group of stocks or a single sector of the stock market, they're overweight that sector of the stock market. Right, that starts to take over the whole portfolio. Then some spooky stuff happens, you're like, well, I gotta sell something. Let's take a look down here at the stuff I could possibly sell. Your eye is gonna fall on the thing where you've made a load of money and which you're overweight, which makes it look risky not to sell it.

John Foley (3:42)

Absolutely. There's another thing going on here as well, which is what I often think of as the curse of being good at stuff. Like if you're good at stuff, people just expect you to do it, whether or not you like it.

Rob Armstrong (3:52)

Right.

John Foley (3:53)

Maybe I'm talking about myself too. I'm making this too personal. But with these tech stocks, people have got used to them exceeding expectations. So now if they don't exceed our already elevated expectations, we become horribly disappointed. And you mentioned the two tech stocks today that are falling. One is Marvel, which is a chip maker. The other one is MongoDB, which is a company that essentially just does an unintelligible thing involving databases.

Like everything in the tech sector today. But these companies haven't actually done anything bad to be down 20 percent. They just have not exceeded expectations by as much as people thought that they should.

Rob Armstrong (4:31)

Yes.

John Foley (4:32)