The Magnificent 7 tech stocks that powered a 54 per cent surge on Wall Street over the past two years are officially in correction territory. Overnight the Bloomberg Magnificent 7 Index dropped more than three per cent, taking the slide since the December 17 peak past ten per cent. That slide has seen about $2.5 trillion dollars’ worth of value wiped off the stocks, led by a 37 per cent plunge in Elon Musk’s Tesla. Investors are worried that Musk is spending too much time away from the Tesla office, which is ironic since he is at the forefront of pushing people back to the office. Amazon, Microsoft and Alphabet (owner of Google) have lost at least ten per cent since mid-December, while Apple and Nvidia are down two per cent. Meta Platforms (owner of Facebook) is the only winner, up five per cent. Is this a temporary phenomenon? I don’t think so. Trump 2.0 is focused on tariffs and every tech giant imports goods and services. Trump 2.0 is also focused on middle America – steelworks and manufacturing. They are the industries gaining from the new government, making them more attractive investment options. That’s not to say the tech titans are going to tumble, but they are likely to underperform. It is already happening. A measure of smaller companies in the US, the Russell 3000 Index, is flat during the period the Magnificent 7 dropped ten per cent. While the broad-based S&P500 is down 1.5 per cent since December 17, if you exclude the Magnificent 7, it is higher. The era of the tech takeover of markets might just be over.
M&A is on the way
Markets hate uncertainty, especially when they are already higher priced. Trump 2.0 is causing plenty of uncertainty and both the local sharemarket and Wall Street are looking very problematic at the moment. Already locally the banks are being sold off. Some of the miners are struggling to find a friend. (Gold stocks are having a great time – they are good places to be in times of uncertainty.) Some commentators are forecasting a big drop in the ASX200. This environment, where valuations have dropped, often prompts takeover bids, especially when there’s been a dearth of M&A activity as has happened in recent years in the local market. Already in 2025, the reverse takeover involving listed Sigma Healthcare and Chemist Warehouse has hit the bourse. US giant CoStar last week bid $2.7 billion for real estate group Domain. There’s plenty of scuttlebutt in the market about toll road group Transurban being in the sights of a private owner, such as a super fund. Transurban’s share price has travelled sideways since COVID and the company provides a stable income stream, something super funds love. Financial services group Insignia is in the middle of a three-way takeover battle. Oil and energy group Santos is a perennial takeover target, according to market gossip, and then there are the regular battles for small miners and other small caps. Get ready for a run of bids during 2025 – great news for investors if you own the company being taken over.
WiseTech: returns over governance
Is it okay for the CEO of a company to behave in a manner that the board isn't happy about, if they make lots of money for shareholders? How much should investors accept from the founder and heart of a company? Is money more important than governance? They are all questions under the spotlight at WiseTech Global, after the company’s four independent directors resigned due to “intractable differences in the board and differing views around the ongoing role of the founder and founding CEO, Richard White.” White has spent the last six months fighting for his reputation after a series of allegations involving his behaviour with female employees and former partners. Four months ago he negotiated a deal to act as a consultant to WiseTech, reporting to the board. That deal was never signed, and today WiseTech announced White was back as Executive Chair.
It's hard to sack a founder when he still owns about one third of the company, and has built arguably the second most successful tech company in Australia (behind Atlassian). Plenty of big investors want him running the place to keep returns flowing. It’s a case of behaviour ignored is behaviour accepted. Plaudits to the independent directors. Governance should be more important than money.
Kitty Flanagan's leadership lessons
Continuing our leadership series, Adam Lang shares some advice from an actor in one of my favourite Australian comedies, Fisk. The 2025 AACTA Awards Ceremony was held earlier this month in Surfers Paradise. Kitty Flanagan won Best Acting in a Comedy award for her work in Fisk, and her acceptance speech contained some very pertinent advice:
"For anyone who is thinking, oh, geez, you can get off now, I will just remind you that I did spend 30 years in the industry not winning anything. So, it's been a while coming. I do get a lot of credit for Fisk, which I deserve because I am smart enough to surround myself with some of the best people, and my core cast makes me look so good. They are fantastic … because they make people look so good. And if there are any actors out there who are just starting out in the biz, can I suggest spending some time in the edit? I was not an actor. I was a comedian. I spent some time in the edit. It's horrific, and it's illuminating, and it will help you no end. Thank you very much. This is a genuine privilege. Thank you."
A successful production is another expression of excellence in teamwork. Kitty Flanagan is smart enough to recognise the contributions of others. She is also brave and accurate about 'spending time in the edit.'. Reviewing our performances can be excruciating, even horrific. But seeing ourselves how others see us and getting their perspectives and advice is vital. It is illuminating, and it will help you to no end.
BEST OF THE WEEK
IF YOU MISSED THIS GUEST, CATCH-UP NOW
This week it's a tie between two different CEOs leading two very different companies, as part of our earnings season coverage with Ausbiz.
2. Then there's Rob Scott, Managing Director of Wesfarmers - best known for retail brands Kmart and Bunnings. This interview is a terrific insight into one of Australia's last real conglomerates - including what's working, and what's not.
"Something that's always bugged me about unemployment data. How does the ABS know who's actually employed? Is it based on tax records, or do companies have to report new hires, or is there some other way of reporting? Or is it just an estimate?
I'm curious!"
AND ONE LAST THING...
It's not often we feature a toilet in the Fear & Greed newsletter, but it's not often that a toilet is made of gold and worth almost $10 million. The artwork was stolen from the UK's Blenheim Palace, the former home of Winston Churchill, in 2019.
Three men allegedly involved in the theft faced court this week, so we're suddenly flush with details about the toilet. Did you know that when it was on display at the palace (and connected to plumbing) it could be booked for a three minute 'appointment'? And when it was previously on display at The Guggenheim in New York, the museum offered it to then-President Donald Trump? Anyway, the toilet is still missing.
