Bloomberg data indicated that the market participants are expecting inflation to exceed 5%. This results in investors repricing equities based on higher near-term inflation risks.
Investors quickly hedged their exposure to energy-related inflation. Oil stocks like Exxon Mobil (XOM) closed at an all-time high at around $160. At a $655 billion market capitalization, markets prefer XOM stock compared to riskier AI names. That includes avoiding Oracle (ORCL), whose market capitalization is $430 billion.
Microsoft (MSFT) still has a commanding market capitalization of $2.83 trillion. However, as inflation risks reaching 5%, MSFT stock is falling. Every rally was followed up with investors selling shares. For example, the stock spiked last August, November, and this January.
Each time, the stock sold off.
The 5% inflation worry led to investors panicking with the tech holdings. NVIDIA (NVDA) lost 4.2% last week, while Broadcom (AVGO) fell by 3.6%.
Speculative stocks fell by more. Tesla (TSLA) lost 5.94% last week. Markets previously ignored the EVs’ steadily declining quarterly sales. They are no longer willing to assign a benefit of the doubt premium for Tesla’s promises. Until Tesla releases self-driving software, robotics, autonomous driving taxis, and AI solutions, TSLA stock might fall back to the $300 - $350 level.
In the drug sector, Lilly (LLY) lost 8% last week. Investors are removing the premium on LLY stock, since the P/E is at 40 times.
