A tangled market web of Tesla-bitcoin-ARK Investment could spell trouble for investors, warns strategist

Tuesday is shaping up to be a tough one for technology stocks, after a selloff greeted investors to start the week.

The Nasdaq Composite
COMP
— up 40% over the past 12 months — tumbled 2.5% on Monday over concerns rising bond yields could make those tech stocks look pricey. When so-called “risk-free” yields are climbing, it is that much tougher to justify equity valuations that seem lofty.

Leading techs lower in premarket is electric-car maker Tesla
TSLA,
down 6% after a roughly 8% drop on Monday. Our call of the day comes from Saxo Bank’s head of equity strategy, Peter Garnry, who has been warning clients that Tesla is tangled up in a “risk cluster” that involves bitcoin and Cathie Wood’s ARK Investment Management firm.

Tesla announced a $1.5 billion bitcoin investment earlier this month. Along with Tesla weakness, bitcoin was down 10% early Tuesday, which some attributed to criticism from Treasury Secretary Janet Yellen (see below). That crypto drop will “obviously illustrate the earnings volatility that Elon Musk has delivered to Tesla,” said Garnry.

Read: Tesla bitcoin gambit already made $1 billion, more than 2020 profit from car sales, estimates analyst

Meanwhile, Tesla “is also the biggest position across all ARK Invest ETFs which added pressure to its biggest fund the ARK Disruptive Innovation Fund
ARKK
losing 6% yesterday. This is exactly the risk cluster that we have been worrying about and wrote about two weeks ago,” said the strategist.

Read: Stocks aren’t in a bubble, but here’s what is, according to fund manager Cathie Wood

In the Saxo note that deep-dived into the hugely popular, actively managed fund’s holdings, Garnry highlighted ARK’s concentration in biotech names that he said could be risky if the market decides to reverse. And Tesla shares represents 6.7% of total assets under management across ARK’s five actively managed ETFs, according to the data Saxo crunched two weeks ago.

“What it means is, that a correction in equities for whatever reasons, could be higher interest rates or prolonged COVID-19 lockdowns, could set in motion selloffs across either biotechnology stocks or Tesla shares and cause performance to deteriorate which could start net outflow of AUM and then the feedback loop has started,” said Garnry, at the time.

For her part, Wood, the chief executive of ARK Invest and manager of the popular ARK Innovation exchange-traded fund, last week said she was surprised by how fast companies are adopting bitcoin, and that her “confidence in Tesla has grown.”

The markets

Stocks
DJIA

SPX

COMP
are selling off, led by techs, with European stocks
XX:SXXP
sinking apart from some travel stocks. Asian markets had a mixed day
XX:000300.
Oil prices
CL00
are rising, while the closely watched yield on the 10-year Treasury note
BX:TMUBMUSD10Y
is trading at around 1.35%.

The chart

Treasury Secretary Yellen may have let some steam out of bitcoin
BTCUSD
after repeating some concerns about the cryptocurrency in an interview with the New York Times’ Dealbook. Bitcoin was last down 13% to $48,886, taking a bunch of other cryptos down with it.

The buzz

All eyes on Federal Reserve Chair Jerome Powell, who is kicking off two-day testimony on Capitol Hill. With more than 10 million Americans still jobless, “Mr. Powell will go out of his way, I am sure, to put tapering to bed and rightly so, as I dread to think what a taper-tantrum of the 2020s will look like,” said Jeffrey Halley, senior market analyst, Asia Pacific, Oanda.

We’ll also get the latest home-price indexes from S&P CoreLogic Case-Shiller and the Federal Housing Finance Agency, along with an update on consumer confidence.

Shares of home-improvement retailer Home Depot
MX:HD
are dropping despite upbeat results.

Shares of special-purpose acquisition company Churchill Capital
CCIV,
also known as a blank-check company, are sinking. After weeks of rumors, Churchill finally announced a deal to buy electric-vehicle company Lucid Motors.

Mourning 500,000-plus American lives lost to COVID-19, President Joe Biden observed a moment of silence late on Monday and urged the public to “mask up.”

Social-media group Facebook
FB
says it will restore links to news articles in Australia, five days after proposed media law changes in the country.

Random read

“I can mouth obscenities at people and they don’t have a clue.” Redditors on pandemic positives.

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