Scottish Mortgage Trust share price headwinds put recovery at risk

By:
on Jan 31, 2023
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  • Scottish Mortgage Investment Trust has made a slow recovery in 2023.
  • The fund faces significant headwinds as interest rates continue rising.
  • Portfolio companies like Moderna and Tesla are also facing challenges.

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Scottish Mortgage (LON: SMT) share price has done modestly well in 2023 as technology stocks rebound. After falling to a multi-year low of 691p in December, the stock rebounded by 13.50% to reach to a high of 785p. Still, the stock faces numerous headwinds in 2023, which could see it underperform the market.

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Significant headwinds ahead

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Scottish Mortgage Investment Trust is a multi-billion fund that invests in leading private and publicly-traded technology companies from around the world. As a result, the fund did remarkably well after the Global Financial Crisis (GFC) as interest rates remained at near zero. 

The paradigm started shifting last year when the Fed and other central banks embarked on an extremely aggressive tightening phase. In the United States, rates stand at over 4% and analysts expect them to hit 5.5% this year. The same trend has been seen in other countries in Europe and Asia.

Scottish Mortgage share price faces significant headwinds. For example, Moderna, its biggest holding, is struggling as demand for its Covid-19 vaccine wanes. While its other vaccines, especially on cancer, hold promise, it will take some time to monetize them.

ASML is also facing challenges as the semiconductor industry battles with falling demand and elevated inventories. As we reported in this report, Intel had a difficult quarter as costs rose, inventories rose, and pricing declined. 

Scottish Mortgage is also a big investor in Tesla. Despite the strong earnings last week, Tesla faces major challenges as competition rises. Leading companies like BYD, Li Auto, Nio, VW, and GM are all taking substantial market share. Other key parts of SMT like Delivery Hero, Stripe, and Zalando are also under pressure.

Therefore, while tech stocks have recovered, some analysts are concerned whether the rally will last at a time when rates are still rising. The only hope will be if the American economy publishes weak numbers and push the Fed to turn dovish.

Scottish Mortgage Investment Trust forecast

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Scottish Mortgage
Scottish Mortgage stock chart

The SMT share price made a brief comeback in January. However, looking at the 4H chart, we see that the upside was capped at 787p. This was a notable level since it coincided by the falling trendline that connects the highest points since November. As such, we can’t argue that the stock is in a recovery mode. 

On a positive side, the shares have formed an inverted head and shoulders pattern, which is usually a bullish sign. This bullish outlook will only be confirmed if it moves above the descending trendline.

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