As we predicted back in November, Netflix is “done.”
We issued this warning right when the company’s shares were at their peak. Good timing.
This week, Netflix announced that its subscriber growth would slow. This news sent the company’s shares into freefall.
As of Friday, NFLX was trading 25% below its pre-announcement level.
This news sent shockwaves through the market.
Bitcoin was down almost 7%, to a five-month low.
What does it mean? And, more importantly, how to you position yourself for profits?
The “Pandemic Windfall” Is Coming to an End
Netflix, Amazon, Zoom, and other companies serving people working, shopping, and streaming from home were huge winners of the pandemic.
Between June 2020 and November 2021, an ETF tracking “work from home” stocks, Direxion Work From Home ETF (WFH), gained about 56%.
But it’s changing now. And some of the companies that benefitted from the pandemic the most are now struggling to grow.
Facing competition, Zoom has been down about 60% over the past year. Amazon is down more than 8% over the same period.
…and this is normal. These companies profited immensely from a unique and unpredictable event.
You can’t expect those conditions to persist.
The world is moving on.
This week, the UK government announced that it would ease most of its Covid restrictions like masks and vaccine passports because the country’s scientists believe the omicron wave has “peaked nationally.”
Ontario, the most populous Canadian province, will start easing restrictions starting January 31.
In other words, the most “acute” stage of the pandemic is almost over.
Covid will not go away, but it will not likely produce the same growth in earnings or stock prices for the companies that served the locked-down world.
Use The Dip to Align with the New Megatrends
Now for the good news…
This selloff won’t likely continue for a long time.
A signal closely watched by Wall Street traders has just turned bullish.
It’s called an “inverted VIX curve.”
As a reminder, VIX is a volatility index. It goes up when the market swings wildly.
And right now, it is signaling that the markets will likely calm down.
Bloomberg reports that this kind of setup happened four times over the past 12 months.
And every time, it coincided with a short-term market bottom.
Even though it’s not a guarantee that it will do so this time, this is excellent news.
How would a smart investor use it to their advantage?
First, taking a hard look at one’s portfolio holdings is in order.
…Especially the tech allocation. The “pandemic darlings” like Netflix or Zoom had their time in the spotlight. It might potentially be a good idea to move on from these names or at least reduce exposure.
It’s a simple “risk-reward” consideration. The potential upside for these stocks might be limited, but the downside risks are real.
Second, reconsider the megatrends on your radar.
Even though it may not look like it where you live, the world is moving on from Covid.
This means that paying attention to other trends that are emerging now is a better idea.
Trends to Watch in 2022
ESG continues to dominate headlines and attract capital. This year, several factors will act as “catalysts,” or accelerators, for this trillion-dollar trend:
- The US, Europe, and China are stepping up their decarbonization game. Which means that they will likely invest more capital into sustainability projects and work on further legislation that will harm the “dirty” industries.
- Also in the US, midterms could reveal that both parties are in agreement on key sustainability policies. For example, for the first time in about 48 years, both Republicans and democrats support nuclear energy as a “green” alternative to the traditional energy sectors like oil and gas.
- The Fed and other banks get involved in “green monetary policy.” The European Central Bank, for example, is going to make “green” standards a part of its $3-trillion asset purchase. And it will favor the companies that pass muster as “green investments.”
Crypto is here to stay, in our opinion. And as other countries continue approving bitcoin-based ETFs, the pressure on US-based regulators is to follow suit. This week, the Fed announced that it opened a debate on “digital USD.” It released a discussion paper that could lead to the eventual introduction of a “crypto dollar.”
In our view, this could be the first step in the eventual introduction of bitcoin and other cryptos to mainstream finance.
The metaverse is another massive trend that is still in its early stages.
And some of the companies participating in it are likely to reap outsized rewards.
Even though metaverse ETFs only launched in the second half of 2021, they already see billion-dollar inflows.
Bloomberg prepared an outline of the sectors participating in this trend. Note this and keep it for your reference:
- Live entertainment (e.g., virtual sports or music events);
- 3D online games (e.g., multiplayer role-playing games or user-generated games built on 3D online platforms);
- 3D design software (e.g., the game engines or metaverse-building software);
- Social networking (e.g., virtual-reality worlds and online collaboration);
- Ad technology (e.g., “virtual billboards” placed inside VR worlds)
- User-generated content (e.g., worlds, games, and art);
- AR & VR hardware (e.g., goggles or input devices);
- Gaming hardware (e.g., graphics cards).
The metaverse trend has had a great start of the year with Microsoft’s $75-billion purchase of Activision Blizzard, a video game company.
And the rest of the year looks positive for metaverse.
Here is our takeaway…
The market is sending strong signals that there is a “trend realignment” taking place.
The old trends are fading, and the ones that we see coming throughout 2021 are still strong and could potentially continue growing into this year.
Aligning yourself with the most massive opportunities in the market sounds like a good plan.
Thank you for your loyal readership,
The Financial Star team