Month: May 2022

There has been a lot of volatility since the start of 2022. Many ASX shares have seen declines. However, the Coles Group Ltd (ASX: COL) share price has been rising. Does this mean it’s a hedge against inflation?

Since the beginning of the 2022 calendar year, at the time of writing, the Coles share price has risen by around 3%. That compares well against the S&P/ASX 200 Index (ASX: XJO) which has fallen by more than 7%.

There is a lot of investor attention on inflation and potential interest rate rises.

What’s going on with the Coles share price and inflation?

There are some businesses that are able to pass on inflation costs to customers, leading to organic revenue growth.

If Coles were to earn the same profit margins, then higher inflation/revenue can help grow the net profit after tax (NPAT).

In the recent FY22 third-quarter update from Coles, the supermarket business said inflation steadily increased throughout the third quarter, with total supermarkets price inflation of 3.3% compared to deflation of 0.2% in the sector quarter.

Coles said that of the supplier input cost inflation requests received, the primary rivers were “raw material, commodity, shipping and fuel costs”. Meat inflation was “largely a result of elevated livestock prices”. There was inflation in vegetables such as cucumbers, broccoli, and tomatoes, with floods in Queensland and NSW impacting availability.

The ASX share also said that supplier input cost inflation is expected to continue in the fourth quarter and into FY23.

Third-quarter recap

Coles reported that, for the quarter, its supermarket sales increased by 4.2% to $8.23 billion. Liquor sales increased by 2.8% to $784 million and Express sales fell by 2.1% to $285 million.

The company said that a high number of COVID-19 Omicron cases in January resulted in increased “absenteeism” with a large number of Coles and supplier team members required to isolate. This led to availability challenges and short-term impacts to stores and distribution centres.

COVID-19 impacts on shopping habits are also dissipating. Coles said that “local shopping trends re-emerged with the contribution from neighbourhood stores greater, as compared to shopping centres and CBD stores”.

Is the Coles share price a buy?

Morgans rates Coles as a buy, with a price target of $20.65, implying a potential rise of more than 11% over the next year on the current price of $18.49.

The broker also noted the comments made by Coles about trading in the fourth quarter. Coles said:

In the fourth quarter to date, Coles has recorded a solid trading period with no COVID-19 related restrictions on traditional family events such as Easter … pleasingly availability continues to improve as the supply chain recovers. COVID-19 costs are expected to continue to moderate further, particularly as public health requirements are eased.

Another broker that rates Coles as a buy is Citi, with a price target of $19.30. It thinks the supermarket business will benefit as consumer habits and the supply chain normalise.

According to Citi, the Coles share price is valued at 22x FY23’s estimated earnings with a projected FY23 grossed-up dividend yield of 5.5%.

The post Is the Coles share price an inflation hedge? appeared first on The Motley Fool Australia.

More reading

• Analysts name 2 ASX dividend shares to buy with growing yields
• Which ASX supermarket shares could win (and lose) as higher inflation hits shelves?
• Why BrainChip, Coles, Fisher & Paykel Healthcare, and PolyNovo shares are rising
• Guess which ASX 200 shares are defying today’s sell-off to climb higher
• Could these 3 ASX dividend shares still beat the piggybank if rates hit 2.5%?

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of Amazon.com (NASDAQ: AMZN) continued to fall on Monday as fears of a consumer retreat grew. The e-commerce giant’s stock was down 3.2% at 12:03 p.m. ET, and was down 10% overall for the month to date.

The Federal Reserve hiked interest its benchmark interest rate by 0.5 percentage points last week, and it’s expected to do so again following its next two monthly meetings in June and July as it attempts to tame inflation. 

So what

Rampant inflation is battering consumers, and when coupled with the prospects for economic decline, sales growth is likely going to slow further. But getting inflation under control won’t be easy or pleasant and many pundits fear it could cause the economy to contract.

U.S. gross domestic product was already down 1.4% in the first quarter. The Federal Open Market Committee has said that it plans to boost the federal funds rate to around 1.9% by the end of 2022. But St. Louis Fed President James Bullard has said publicly that he thinks a steeper path of hikes to 3.5% by the end of the year will be needed to get inflation under control.

Now what

As the biggest e-commerce site in the U.S., accounting for 40% of all online sales, Amazon is always apt to feel some pain when consumers tighten their belts. Yet it is still growing: U.S. revenue was up 7.5% in the first quarter.

While retail obviously remains important to the company, Amazon’s cloud computing operations are its biggest profit center. Earnings were up 57% in that segment last quarter. Look for that trend to continue as more businesses move more of their own operations online. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Amazon shares are tumbling today appeared first on The Motley Fool Australia.

More reading

• Is global e-commerce really at risk?
• Why Amazon stock tanked today
• What Apple and Amazon said after hours Thursday
• Have ASX tech shares finally reached the bottom?
• The world’s most valuable companies from 2000 to 2022

Rich Duprey has no position in any of the stocks mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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ASX shares are having yet another doozy of a selling day thus far this Tuesday. As it currently stands, the All Ordinaries Index (ASX: XAO) has lost another painful 1.36% and is now back to just under 7,260 points. But that pales in comparison to what is happening with the BrainChip Holdings Ltd (ASX: BRN) share price.

BrainChip shares are getting hammered today, no way around it. At the time of writing, this artificial intelligence company is down a nasty 11.16% at $1.075 a share. It could be worse though. Soon after market open, BrainChip shares plunged all the way down to $1 a share. That was a loss worth more than 17% at the time.

Even though the company has recovered some of this morning’s losses, its current pricing still puts BrainChip among the worst-performing ASX shares of the day.

So what’s going on with BrainChip today that has elicited such a strong punishment from the markets?

Why is the BrainChip share price tanking today?

Well, as we covered yesterday, BrainChip was one of the few ASX shares that had a strong day of trading on Monday. As most ASX shares were crashing, BrainChip ended up racing higher, finishing at $1.21 a share. That was up around 14% for the day.

As we covered at the time, this rise might have had something to do with BrainChip listing the leading UK-based semiconductor company Arm as a partner. It seems this was enough to attract buyers yesterday.

But judging by the company’s share price performance over today thus far, this goodwill seems to have burned out. There hasn’t been any other news or announcements out of BrainChip this week, so that’s the best explanation we have right now.

At the current BrainChip share price, this ASX tech share has a market capitalisation of $2.07 billion.

The post Why did the BrainChip share price just crash 17%? appeared first on The Motley Fool Australia.

More reading

• 3 ASX All Ordinaries shares that managed to post decent gains on Monday
• Why BrainChip, PolyNovo, TPG, and Westpac shares are pushing higher
• Why is the BrainChip share price racing 8% higher today?
• On a dire day for the ASX, the BrainChip share price just leapt 11%. What’s going on?
• Why BrainChip, Coles, Fisher & Paykel Healthcare, and PolyNovo shares are rising

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Pendal Group Ltd (ASX: PDL) share price is bucking today’s sell-off with its shares rallying on the back of a profit surge.

Shares in the fund manager jumped 6.69% to $5.26 in late morning trade. The gain is even more impressive given that the S&P/ASX 200 Index (ASX: XJO) tumbled 2.2% to a near three-month low as investors dumped risk assets.

All sectors are trading in the red at the time of writing. But the Pendal share price was spared the carnage after it said its 1HFY22 underlying profit after tax [UPAT] increased by 59% over the same time last year to $131.4 million.

Pendal share price surges on profit growth

The group’s underlying earnings per share (EPS) expanded 34% to 34.3 cents and fee revenue improved 31% to $362.6 million.

The strong result was bolstered by the full six-month contribution from US investment management firm Thompson, Siegel & Walmsley (TSW). Pendal acquired the company in 2HFY21.

“We have seen TSW’s value strategies outperform in the past quarter and despite cautious US investor sentiment, TSW’s international strategies have seen inflows,” said chief executive Nick Good.

“The integration of TSW is tracking well… Execution of a coordinated sales strategy has begun, with cross-selling opportunities emerging.”

Expanding margins

Even if TSW was excluded, the group’s base management fee margins were slightly higher. Fee margins increased to 51 basis points (bps) compared to 49 bps in 1HFY21. This is due to the positive shift in Pendal’s revenue mix during the period.

Cost management also helped. Operating expenses may have increased by 20% to $209.6 million, but that’s still below revenue growth.

Most of the increase in expenses was also due to TSW. Otherwise, Pendal’s operating expenses would have risen by a more modest 4%.

Dividend and capital management

If that wasn’t enough to win over investors to the Pendal share price, the group upped its interim dividend by 24% to 21 cents per share. The dividend is on top of the $100 million on-market share buyback that management is currently undertaking.

Speaking on the result, Good added:

Pendal Group has delivered a solid first-half result in a tough environment for asset managers. We delivered healthy growth in revenue, underlying EPS, UPAT, and the interim dividend.

While continuing to invest in our business, we have taken a more disciplined approach during the period, in response to the current market environment and tempered investor confidence.

Lack of guidance isn’t hurting Pendal’s share price

However, if you were hoping for a more substantive outlook and guidance, Pendal will leave you wanting. Good didn’t say much except for a couple of motherhood comments about continuing to manage costs and delivering “investment excellence”.

On the other hand, given how volatile the environment is, you can’t blame management teams for being vague.

Even with today’s big rally, the Pendal share price is still nursing a close to 30% loss over the past year.

The post Pendal share price surges as profit soars 60% appeared first on The Motley Fool Australia.

More reading

• ASX shares are tumbling, but is it an actual stock market crash?
• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX shares today
• ‘Do not panic’: Experts explain how to stay calm and carry on investing amid rising interest rates
• Here are the 3 most heavily traded ASX 200 shares on Monday

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Core Lithium Ltd (ASX: CXO) share price is in the red today despite some promising drilling results.

The ASX lithium explorers shares are currently swapping hands at $1.12, a 2.2% fall. However, in earlier trade, the company’s share price plunged almost 11% to $1.02. For perspective, the  S&P/ASX 200 Index (ASX: XJO) is falling 2% today.

Meanwhile, Core Lithium is not the only ASX lithium share to descend today. The Lake Resources NL (ASX: LKE) share price is falling 4.8%, while Pilbara Minerals Ltd (ASX: PLS) is down 2.34%.

The S&P/ASX 200 Materials Index (ASX: XMJ) is sliding 2.7% in today’s trade, while the S&P/ASX 300 Metals and Mining Index (ASX: XMM) is gravitating 3%.

Let’s take a look at what could be impacting Core Lithium today.

What did Core Lithium announce?

The company has received final results from lithium exploration in 2021 at the Finniss Lithium Project in the Northern Territory.

Core reported “exciting results” from the Penfolds prospect. A highlight for the company was a high-grade intersect of 11m at 1.55% lithium oxide from 131m at drill hole SRC080. This included a zone of 7m at 2.06% lithium oxide.

Drilling also intersected spodumene-bearing pegmatite beyond the current mineral resource estimate at the BP33, Lees and Hang Gong prospects.

Further drilling at the Finniss project will continue in the coming month.

Management commentary

Core Lithium’s managing director Stephen Biggins said:

The highly prospective nature of these new lithium drilling results reflect the confidence Core has in delivering further significant resource growth from the Finniss Project that will add to our life of mine and our capacity to materially increase lithium production from northern Australia in the future to keep up with rapidly growing global demand.

Our prime directive is to deliver first production of high-quality lithium concentrate from the Finniss Project this year in the midst of a very high lithium price and high operating margin environment.

Core Lithium share price snapshot

The Core Lithium share price has exploded 375% over the past 12 months, while it has soared 93% in the year to date.

For perspective, the benchmark ASX 200 has lost 2% over the past year.

Core Lithium has a market capitalisation of about $1.89 billion.

The post Core Lithium share price dips despite ‘exciting results’ appeared first on The Motley Fool Australia.

More reading

• Why is the Novonix share price down 6% on Friday?
• Why is the Core Lithium share price tracing 6% lower on Friday?
• Investing in ASX lithium shares? Here’s what you need to know
• Here are the top 10 ASX shares today
• 3 ASX 200 mining shares that surged more than 5% today

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The AUB Group Ltd (ASX: AUB) share price has returned to trading following the company’s institutional component update.

At the time of writing, shares in the insurance broker network are swapping hands at $18.62, down 16.73%.

AUB shares resume trading

It been a disappointing day for AUB shares, with investors selling their holdings amid the company’s successful equity raise.

In its release, AUB advised it has completed its institutional placement and institutional entitlement offer.

The accelerated pro-rata non-renounceable entitlement offer sees 1 share issued for every 5.2 AUB shares owned. Issued at a price of $19.50 apiece, both the placement and entitlement offer were significantly oversubscribed. The majority of eligible institutional security holders took up their allocated minimum entitlements on the latter.

Approximately 18 million new shares are to be issued under the equity raising, representing 24.1% of the current issued capital.

The newly created shares will be settled on 17 May, and available to trade on the following day.

With the institutional entitlement offer and placement now completed, the retail component will commence on 16 May.

Hoping to raise an additional $47 million, AUB will offer the same terms and ratio of shares to eligible retail shareholders. The Retail Entitlement Offer is expected to close on 27 May.

AUB’s total equity raising (being the placement and entitlement offer) is $350 million.

The company recently entered into a binding agreement with Tysers for a total consideration of around $880 million.

The acquisition will be funded from proceeds of the equity raising, a placement of $176 million (GBP100 million) of AUB shares to the vendor of Tysers, and a new $675 million multi-currency debt facility.

AUB group CEO, Mike Emmett commented:

We are very pleased with the strong support we have received from our institutional shareholders and welcome new investors to AUB as we undertake this important next step in our growth strategy.

Tysers will provide AUB with a direct platform to the Lloyd’s market, assisting AUB to continue our growth while enhancing our value proposition to our brokers and customers.

About the AUB share price

Trading along small and sharp share price movements, AUB shares have fallen by about 6% in the last 12 months. However, in 2022, the company’s share price is down by 25%.

AUB presides a market capitalisation of roughly $1.43 billion, with approximately 74.46 million shares on its books.

The post Here’s why the AUB share price is tumbling 16% today appeared first on The Motley Fool Australia.

More reading

• AUB share price halted amid $880 million acquisition

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Austbrokers Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Commonwealth Bank of Australia (ASX: CBA) may not be delivering the best returns of the S&P/ASX 200 Index (ASX: XJO) banks in 2022, but it’s certainly outpacing the benchmark index itself.

The CBA share price is following the bulk of the market lower today, down 1.6% to $101 per share in late morning trade. This comes on the back of another day of heavy selling in US markets yesterday (overnight Aussie time), with the S&P 500 closing down 3.2%.

Today’s selling also sees the CBA share price dip into the red for the calendar year, down 1.1%.

While that’s not the result investors would like to see, it’s well ahead of the 8.3% year-to-date loss posted by the ASX 200. And let’s not forget that CommBank also paid out a $1.75 fully franked interim dividend on 30 March.

So why is the big bank outpacing the index?

Rising rates offering tailwinds to financial shares

One of the biggest factors dragging on ASX shares is the realisation that inflation around the Western world is above central banks’ target zones, ushering in a long dormant scenario of rising interest rates.

Higher rates increase the costs of tomorrow’s money. And the spectre of a series of rate hikes has hit high growth tech share the hardest. The S&P/ASX All Technology Index (ASX: XTX), for example, is down 33% in 2022.

But the CBA share price has weathered the storm a lot better, alongside most financials. While still down for the year, the S&P/ASX 200 Financials (ASX: XFJ) has only lost 2.7%.

Part of that resilience is that financial shares are among the few sectors that can benefit from higher interest rates.

“Banks and financials tend to perform well in rate hike cycles, this is because higher interest rates are generally beneficial to banks since they allow them to earn more net interest income,” said eToro market analyst Josh Gilbert.

EY’s banking and capital markets leader, Tim Dring also pointed to higher rates offering a lift to the CBA share price and other bank shares:

While margin compression is likely to continue in the short term, the rising interest rate cycle should ease NIM [net interest margin] pressures and lead to improved profitability for the banks over the medium term.

But it’s not all smooth sailing ahead for the banks. “Ongoing economic risks point to continued uncertainty for the banking sector’s outlook,” Dring added.

And while higher rates do increase the banks’ lending margins, they could also result in an increase in bad debts and slower loan growth moving forward.

CBA share price snapshot

Though it’s just dipped into the red for 2022, the CBA share price remains up 6.2% over the past 12 months. That compares to a 2.9% loss posted by the ASX 200 over that same period.

The post Why is the CBA share price outpacing the ASX 200 in 2022? appeared first on The Motley Fool Australia.

More reading

• What’s the outlook for ASX 200 bank shares amid rising interest rates?
• Is it too late to buy big bank ASX shares?
• Own CBA shares? Here’s what to expect when the bank reports next week
• Top brokers name 3 ASX shares to sell today
• What’s the outlook for the CBA share price in May?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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S&P/ASX 200 Index (ASX: XJO) tech shares are being slammed on Tuesday after the Nasdaq Composite (NASDAQ: .IXIC) continued to tumble into market crash territory overnight.

The tech-heavy US-based index extended its slump in Monday’s session overseas, recording a 4.29% fall and bringing its losses for the last six weeks to 20.5%.

Seemingly in reaction, the S&P/ASX 200 Information Technology Index (ASX: XIJ) is plunging 1.25% at the time of writing, having sunk by almost 5% in early trading. It’s being dragged down by most of the ASX’s prominent tech shares.

For context, the ASX 200 is recording a 1.63% slip right now.

Let’s take a closer look at what’s going on with the Nasdaq Composite and its impact on ASX 200 tech stocks.

ASX 200 tech shares’ Tuesday tumble

ASX 200 tech shares are suffering after the US tech-heavy index tumbled amid continued concerns about rising interest rates.

The Nasdaq Composite ended yesterday’s session in the red, as did the S&P 500 Index (SP: .INX) and the Dow Jones Industrial Average Index (DJX: .DJI). The latter indexes fell 3.2% and 1.99% respectively on Monday.

Their continued downturn follows the US Federal Reserve’s decision to raise interest rates by 0.5% last week, according to reporting by Reuters.

Nasdaq giant Tesla Inc (NASDAQ: TSLA) was one of the index’s biggest weights overnight, recording a 9% fall.

Back on the ASX on Tuesday, the tech sector is being dragged down by Block Inc (ASX: SQ2). Its share price is tumbling 10.27%.

Meanwhile, stock in NextDC Ltd (ASX: NXT), Computershare Limited (ASX: CPU), Novonix Ltd (ASX: NVX), and Altium Limited (ASX: ALU) are recording drops of 4.6%, 2.6%, 2.2%, and 1.7% respectively.

Though, it’s not all dire among the ASX’s biggest tech stocks.

Shares in Life360 Inc (ASX: 360), Tyro Payments Ltd (ASX: TYR), and Iress Ltd (ASX: IRE) are leading the sector. They’re gaining around 3.9%, 2.4%, and 2.1% respectively.

The Xero Limited (ASX: XRO) share price is also in the green.

The ASX 200 tech sector has plummeted more than 23% since its most recent high in early April. It’s also more than 33% lower than it was at the start of 2022.

The post Technophobia? Why ASX 200 tech shares are getting hammered again appeared first on The Motley Fool Australia.

More reading

• 2 quality ASX shares to buy in this volatility: experts
• Why is the Block share price plunging 11% on Tuesday?
• Unprecedented: Does this event mean we’re now in a bear market?
• 5 things to watch on the ASX 200 on Tuesday
• Xero share price slumps to lowest price since 2020. Broker tips 50% upside

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Altium, Block, Inc., Life360, Inc., Tesla, Tyro Payments, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended Block, Inc., WiseTech Global, and Xero. The Motley Fool Australia has recommended Tyro Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Insurance Australia Group Ltd (ASX: IAG) share price is in the green in the past month, but could it go higher?

IAG shares have jumped more than 6% since market open on 11 April and are currently trading at $4.63 apiece. That’s up 0.22% on yesterday’s closing price. For perspective, the S&P/ASX 200 Index (ASX: XJO) is down 2.27% at the time of writing.

Let’s take a look at the outlook for this insurance company.

Could the IAG share price go higher

Wilsons analysts have named IAG as a ‘defensive growth’ share that could be a buy in turbulent times.

In a memo to clients, the team predicted the next couple of months will be edgy as rates rise. Wilsons said:

The narrative has changed slightly over the last month with defensives starting to outperform the market.

Our picks are healthcare, insurance and telco.

IAG was named specifically by Wilsons. Other defensive shares recommended included CSL Limited (ASX: CSL), Healthco Healthcare and Wellness REIT (ASX: HCW), and Telstra Corporation Ltd (ASX: TLS).

The IAG share price climbed 3.65% in the month of April, outperforming the ASX 200 index. As my Foolish colleague Brooke reported recently, IAG offers a dividend reinvestment plan (DRP). This provides shareholders the opportunity to receive IAG dividends as new shares instead of cash.

Share price snapshot

Despite falling 10% in the past year, the IAG share price has jumped more than 8% year to date.

For perspective, the benchmark S&P/ASX 200 Index (ASX: XJO) has slumped 3% in the past year.

IAG commands a market capitalisation of around $11.3 billion based on the current share price.

The post The IAG share price has gained 6% in a month. Is this just the beginning? appeared first on The Motley Fool Australia.

More reading

• 4 ‘defensive growth’ ASX shares to buy in turbulent times: Wilsons
• Does IAG have a dividend reinvestment plan?
• What happened to the IAG share price in April?
• How does the IAG dividend compare to QBE?
• The IAG share price has lost 10% since February. Is it an opportunity?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL Ltd. The Motley Fool Australia has positions in and has recommended Insurance Australia Group Limited and Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

2022 has been ugly for the stock market, and after a volatile week to start out the month of May, investors came back to Wall Street on Monday without much in the way of confidence. As of 12:30 p.m. ET, the Nasdaq Composite (NASDAQINDEX: ^IXIC) was down another 2.7% after having been down even further earlier in the day.

The rout in technology stocks and other high-growth companies continued on Monday, as investors kept focusing on the potential impact of higher interest rates on long-term growth and economic conditions. However, other financial markets have also seen pressure from the current macroeconomic and geopolitical situation. Cryptocurrencies were a big loser on Monday as well, and as you’ll see in more detail below, those declines had a negative impact on crypto stocks Coinbase Global (NASDAQ: COIN) and MicroStrategy (NASDAQ: MSTR).

Why crypto weighed on the markets

Cryptocurrencies were broadly lower, even among the most popular and highest-profile digital assets. Bitcoin (CRYPTO: BTC) dropped nearly $2,300 to $32,300, while Ethereum (CRYPTO: ETH) was down more than $150 to fall below the $2,400 mark. Losses for smaller digital assets were even more pronounced, with Shiba Inu and Polkadot falling more than 14%.

Part of the problem with the crypto market is that it has been highly correlated to the fortunes of the Nasdaq lately. Because blockchain has substantial technological elements to it, it’s natural for investors to think of it as having similar prospects to other types of cutting-edge technology. With the Nasdaq having so many of those high-growth tech stocks, it makes sense that correlations could be high.

Yet there were also some crypto-specific issues that hit markets over the weekend. In particular, the stablecoin TerraUSD caused ripples across the asset class when it briefly lost its peg to the U.S. dollar. That sent the value of the related Luna cryptocurrency plunging, and it remains down almost 14% Monday afternoon. If investors can’t count on stablecoins being freely exchangeable for their corresponding amount of fiat currency, cryptocurrency markets face a challenge they’ll have to resolve in order to attract more mainstream adoption.

Companies counting on crypto

The ripple effects of cryptocurrency fluctuations weighed on stocks of companies that rely on healthy market conditions for digital assets. Coinbase has become one of the most prominent cryptocurrency exchanges in the global market, but it relies on transaction volume to drive much of its revenue. With sales based on percentages of total trades, adverse market conditions that force crypto traders to cut back on their buying and selling have a direct negative impact on Coinbase’s health. That’s a big part of why the stock is down more than 15% Monday afternoon.

In addition, some companies have turned to Bitcoin and other digital assets as alternatives to U.S. dollar cash holdings. MicroStrategy in particular has become famous for its devotion to Bitcoin, holding 129,218 tokens as of March 31. Today’s losses alone work out to more than $250 million in reduced value for MicroStrategy, and given that the company has taken on leverage to buy more cryptocurrency and has a market capitalization of just $2.7 billion, the volatile fluctuations in Bitcoin’s value create substantial financial risk if crypto prices don’t reverse higher in short order. Shares of MicroStrategy were down 19%.

Many investors have dismissed cryptocurrencies as poor alternatives to other investment assets. However, even if you don’t hold crypto yourself, the market has become large enough that disruptions can have impacts on other financial markets. That makes it important to keep your eyes on the cryptocurrency arena as you try to put together the best portfolio for your needs. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why these 2 Nasdaq crypto stocks are getting crushed today appeared first on The Motley Fool Australia.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin, Coinbase Global, Inc., Terra and Ethereum. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended MicroStrategy. The Motley Fool Australia owns and has recommended Bitcoin, Ethereum and Luna. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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