The Novonix Ltd (ASX: NVX) share price struggled today, closing 5.45% lower at $5.90. Whilst the spot rally in commodities has taken off in 2022, Novonix – a battery technology company – has slipped well into the red during that time.
The company's shares are down 36% since trading recommenced in January, clipping a good portion of the gains the company earned in 2021. Novonix, therefore, sits among the laggards of 2022 in the metals and tech sector.
The $2.85 billion company – by market cap, Novonix hasn't turned a profit yet – now trails the wider tech sector by a substantial amount in 2022.
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What's up with Novonix?
Growth-type shares have incurred heavy losses across the board in 2022 as the yields on long-dated government bonds spike to multi-year highs.
The impulse effect from these moves has ramifications for both growth and tech stocks, seeing as the value of their cash flows into the future is tied to these rates. Higher yields simply mean lower valuations.
Investors are quick to respond to the moves as well. Just have a look at the interplay between the yield on the Australian government 10-year note and the tech index since March 2021, around 12 months of trade.
Why this is important is that Novonix and the wider tech sector tend to move together. Not in terms of absolute returns, but in terms of relative direction.
This has certainly been the case with Novonix this year, as I've reported in the past. By mid-March, the company's share price had already slipped 44% as the tech sector faltered.
Whilst there was a fair spread between the two last year, in more recent times, the correlation is abundantly clear. Shown below is the performance of Novonix and the wider tech sector from November, right about when Novonix first started to slip on the chart.
As government bond yields creep up, it appears as if the trend in capital outflows from tech indices has continued well into the new year. Tech shares suffered heavy losses last quarter, for instance.
Since we rolled into April, the tightness of this inverse relationship has been on full show. Bond yields are spiking amid a wave of macroeconomic forces and tech shares are tumbling further, as seen in the chart below, showing levels of each since April 4.
Not even an update regarding the company's battery technology on 4 April was enough to help Novonix. Its share price has tumbled further since then, in almost direct alignment with the wider sector.
Despite the pressures, longer-term, Novonix is still up around 160% in the past 12 months and has seen a 15% gain in the last month of trade.
