Right now, the tech sector —and AI, specifically— are holding up the broader market indexes, but if you ignore NVIDIA (NVDA), Alphabet (GOOGL), and co., there are large pockets of extreme weakness.
Chipotle (CMG) just reported its Q3 results, and it crashed by about 20% in a single day:
And that’s just the tip of the iceberg. Popular restaurant chains Chipotle, CAVA (CAVA), SweetGreen (SG), Wendy’s (WEN), Jack in the Box (JACK), etc., are all down 50-80% off their highs:
But it is not just restaurants.
Clothing brands are also down big. Lululemon (LULU) is down nearly 50% over the past year alone. Nike (NKE), Adidas (ADDYY), and others are also down about equally as much over the past 5 years:
Big pharma companies like Pfizer (PFE), Bristol-Myers Squibb (BMY), and Novo Nordisk (NVO) have also dropped to much lower levels:
BDCs are going through a crash at the moment as well:
A lot of major alternative asset managers have not been immune to the sell-off either:
Airlines are down big as well. Spirit even went bankrupt:
Finally, even select tech companies are taking it on the chin. The large-cap Fiserv (FI) just dropped by over 40% on a single day due to disappointing results. I don’t recall ever seeing a company with a $50+ billion market cap drop so much in a single day, outside of the Great Financial Crisis.
Lots of once-popular tech companies like Zoom (ZM), Teladoc (TDOC), Peloton (PTON), Upwork (UPWK), Fiverr (FVRR), Roku (ROKU), DocuSign (DOCU), Unity Software (U), are down big and never recovered, despite this latest tech bull run:
All of this just to say that it is not just REITs that are struggling at the moment. The broader market indexes have kept marching higher largely because of select Tech companies that are benefiting from the AI boom, but this masks large pockets of weakness in other sectors of the market.
The latest sell-off was largely driven by fears of a weakening consumer and labor markets, which could signal that a recession is approaching.
Just consider the magnitude of these recent layoff announcements:
UPS: 48,000 employees
Amazon: Up to 30,000 employees
Intel: 24,000 employees
Nestle: 16,000 employees
Accenture: 11,000 employees
Ford: 11,000 employees
Novo Nordisk: 9,000 employees
Microsoft: 7,000 employees
PwC: 5,600 employees
Salesforce: 4,000 employees
Paramount: 2,000 employees
Target: 1,800 employees
Kroger: 1,000 employees
Applied Materials: 1,444 employees
Meta: 600 employees
(Source: The Kobeissi Letter)
This has had a particularly big impact on the market sentiment of consumer-related businesses such as restaurants, clothing brands, entertainment, gaming, hospitality, private credit, but also a number of real estate companies, including hotels, apartments, and experiential properties.
How do we react to such volatility?
Well, if you have been a member of High Yield Landlord for a while, you should know by now that we don’t shy away from it.
When the market dips due to short-term concerns such as a weakening economy or disappointing quarterly results, we embrace it because it serves us bargains.
Sure, the near-term outlook may worsen, but good real estate should be priced based on decades of expected future cash flow; therefore, the real impact on fair value is rarely that significant.
The reason why the market is so volatile is that most investors fixate on short-term results, extrapolate recent trends far into the future, and are quick to forget about the bigger picture, which is that markets are cyclical and good times generally follow tough times and vice versa.
This is precisely why Warren Buffett has famously said that you should be fearful when others are greedy and greedy when others are fearful, emphasizing that the market has the tendency to overreact due to its lack of patience.
In today’s market, this means buying the dips in companies that own good assets that enjoy attractive long-term prospects, but have recently gotten beaten down to exceptionally low valuations due to some temporary factors.
For this reason, we are today making small additions to the following companies:
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