Joey Solitro
It was an ugly start to the week for stocks, with the main indexes notching sharp losses Monday. Today's broad weakness continued last week's selloff and was sparked by a confluence of factors, including concerns the Fed has waited too long to cut rates and the collapse of the carry trade in Japan.
The selling in global markets started late last week after disappointing manufacturing data and a softer-than-expected July jobs report caused concern that the Fed is behind the ball on rate cuts and that a recession could be looming.
Wall Street's jitters were only exacerbated by an unwinding of the carry trade in the Japanese yen. "[O]ver many years, investors have been borrowing in yen to invest in higher-yielding assets," writes the Schwab Center for Financial Research team in emailed commentary. "With interest rates rising [and] the yen moving higher, those trades are no longer profitable, and traders are unwinding them. The unwinding of leveraged trades in risk assets is taking on a life of its own because the size of the trades is large."
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As a result, the Dow Jones Industrial Average plummeted 2.6% to 38,703, the S&P 500 slumped 3.0% to 5,186, and the Nasdaq Composite surrendered 3.4% to 16,200.
Buffett slashes Apple stake
Not helping matters was Berkshire Hathaway's (BRK.B, -3.4%) release of its quarterly filing with the Securities and Exchange Commission (SEC), which showed Warren Buffett's holding company slashed its stake in Apple (AAPL) in the second quarter.
Indeed, the report indicated the market size of Berkshire's Apple stake was valued at $84.2 billion as of June 30. By contrast, Buffett's position in AAPL had a market value of $135.4 billion at the end of Q1.
Buffett & Co. already began trimming Berkshire's Apple stake in Q1. "Why? Because corporate taxes are 'likely' to go up 'later,'" wrote Dan Burrows, senior investing editor at Kiplinger.com, at the time. "He figures the federal government – at some unknown future date – will have to raise taxes to reduce the deficit."
Apple stock finished Monday's session down 4.8%.
Coinbase sells off alongside crypto
Coinbase Global (COIN) was another notable decliner Monday, plunging 7.3% as major cryptocurrencies, including bitcoin and ethereum, declined sharply.
Still, Wall Street remains upbeat toward the stock that has more than doubled on a year-over-year basis. Speaking for the bulls is Oppenheimer analyst Owen Lau (Buy). "We view COIN as an enabler of crypto innovation, which solves some pain points in the existing financial system," Lau wrote in a recent note.
Kellanova, CrowdStrike climb in down day
Not all of the day's price action was lower. Kellanova (K), for instance, climbed 16.2% on news the Pringles maker could be bought by privately owned snack maker Mars. According to The Wall Street Journal, a deal between the two consumer staples firms is reportedly in the works and could value Kellanova at roughly $30 billion.
"We believe a transaction would further validate the power of Kellanova's brands and growth potential, both in North America and internationally," wrote Stifel analyst Matthew Smith. "The transaction would be the largest packaged foods transaction since the Kraft-Heinz merger."
Elsewhere, CrowdStrike (CRWD) stock rose 1.9% after the latest development in the cybersecurity firm's back and forth with air carrier Delta Air Lines (DAL, -4.8). The two have been at odds since a mid-July technical glitch sparked by a CrowdStrike software update disrupted several industries and services. Delta, specifically, had to cancel thousands of flights and is seeking damages from CrowdStrike.
However, a lawyer for the cybersecurity firm released a letter over the weekend that indicated Delta had rejected onsite help during its recent outage and that CrowdStrike's liability is capped in the single-digit millions.
"For a large customer such as Delta, if CRWD's liability risk is in the single-digit millions, the overall risk would be a lot less than feared," says Wedbush analyst Taz Koujalgi.
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