Tag: news

Just when you thought it was safe to buy any dip, we suffer the worst day in stocks in over 6 weeks as a series of headlines weighed on sentiment…

• 0830ET *FIRST RISE IN INITIAL JOBLESS CLAIMS SINCE MARCH

• 1035ET *FLORIDA POSTS RECORD 173 DAILY VIRUS DEATHS AMONG RESIDENTS

• 1320ET *HOUSE ANTITRUST PANEL TO EYE AMAZON, APPLE, FACEBOOK, GOOGLE

• 1335ET *APPLE FACING MULTI-STATE CONSUMER PROTECTION PROBE

But then, in a panicked moment from The Fed as losses accelerated, the collapse stalled as this hit…

• 1430ET *FED BROADENS FIRMS IT WILL TRANSACT WITH ON THREE LOAN PROGRAMS

But we suspect The Fed is “gonna need a bigger boat”…

Nasdaq led the markets lower with Small Caps outperforming…NOTE the battle that occurred in the last 90 minutes to stabilize the market – makes you wonder who kept bidding every tiny dip to the day’s lows…

Today’s move erased most of the Nasdaq outperformance of the Russell 2000 this month…

Source: Bloomberg

FANG Stocks extended their losses, erasing all of Monday’s panic-bid gains…

Source: Bloomberg

AAPL was downgraded by Goldman (citing its price appreciation as “unsustainable”) and tumbled then accelerated on the consumer fraud probe… this is AAPL’s worst day since 3/20

MSFT is back in the red for July and FB & AAPL are also rapidly erasing their July gains (AMZN is still leading on the month)…

TSLA earnings smashed expectations but investors appear to have finally started looking through the smoke and mirrors

And as stocks tumbled, safe-haven and alternatives were bid, with Treasury yields falling further…

Source: Bloomberg

This is the lowest 10Y yield close since 4/21 (and 2nd lowest close ever) as stocks remain a post-modern version of reality…

Source: Bloomberg

Gold  rebounded off early efforts to hammer them…

But silver did notably did not after its recent surge…

Bitcoin legged higher again on the day…

Source: Bloomberg

Ethereum really surged the last few days…

Source: Bloomberg

Pushing ETH to its highest since Feb 2020…

Source: Bloomberg

The Dollar was lower again but tried hard to rally back late on (another intraday pump and dump though)…

Source: Bloomberg

Pushing the Dollar Index to its lowest of the year…

Source: Bloomberg

Oil prices fell on the day as stocks sank with WTI findingh brief support at $41..

The silver weakness today stabilized the recent plunge in the gold/silver ratio…

Source: Bloomberg

Finally, the acceleration in cases has slowed and while the deceleration in deaths has stalled, there is no sign of an imminent wave of plague-like fatalities anytime soon… (paging Dr.Fauci)

Source: Bloomberg

Authored by Sven Henrich via NorthmanTrader.com,

You know where I stand: Markets have been bloated to high heaven via unlimited and unprecedented liquidity injections creating the illusion of a bull market when there is none. Yes indices such as $SPX and $NDX show incredible strength driven by a few single stocks, but as we discussed the rest of the market is far from bullish.

Equal weight keeps lagging:

…while virtually all market gains are driven by a handful of stocks:

In fact the broader markets has gone nowhere since mid April:

But still the few stocks are running overall market valuations to never before seen highs:

Yesterday markets closed at 155.3% market cap vs GDP with negative earnings growth no less
The largest financial bubble ever. pic.twitter.com/6ETTPMzVAk

— Sven Henrich (@NorthmanTrader) July 23, 2020

…pushing P/E levels into ever higher extremes:

Who needs earnings growth when all you need is multiple expansion?

Hard to justify valuations with traditional metrics in this environment. You know metrics such as earnings, growth, etc. So best not do it according to none other than Fed hired Blackrock:

‘BlackRock Inc.’s senior quant has bad news for the likes of Bill Gross and Cliff Asness wagering on a comeback for value stocks. In the worldview of Jeff Shen, money managers need new investing methods because there’s no way to tell if betting on ostensibly cheap companies will work again. In fact, comparing share prices to fundamentals like corporate profits or book value is essentially futile in complex markets.

To fix misfiring quant strategies, the co-chief of the $106 billion systematic active equity group has a newfangled suggestion: Investors should scour alternative data for trading signals and end their obsession with valuation metrics.”

Yea, it’s hard to justify valuations in a bubble so best just make things up. It’s different this time. Don’t you know?

Besides, too strong is the draw towards the next stimulus carrot which awaits in the wings of a well advertised new fiscal stimulus package that both Democrats and Republicans pretend to fight over before eventually agreeing to it anyways. It’s an election year and nobody will risk standing in the way of throwing about some more free money. So that stimulus package is coming, unless someone is willing to create a big drama over it, perhaps as a way to create an election narrative? We’ll soon find out who is willing to risk what.

But don’t play too hard to get for this market has yet to prove it can rally other than on chasing stimulus and vaccine optimism headlines.. It just can’t make new highs without.

And in context of the entire rally it is perhaps nothing something very important: The US Dollar. In fact it may be argued that entire unlimited QE and M1 money supply expansion game has had one key net effect: Kill the dollar. The correlation since the March lows seems pretty self evident:

Dollar rises, stocks go down, dollar drops, stock rise. Magic. Currency destruction may make a bull market on paper, but in terms of purchasing power it creates nothing. Have you looked at yields lately? The 10 year now trading below 60bp. Quite the V recovery.

So dollar destruction, the key to keep equities and the bubble floating higher? Good luck with that as the US Dollar has just approached a key level. See, it’s not only stocks that are in trend charts, but also currencies.

And this here suggests the potential for a super bullish move to come in the Dollar:

Sharp rallies in the dollar have generally not been kind to equities in recent years. Think 2008, 2010, even 2015/2016 and then of course in early 2020. The Fed has managed to bring about this big recovery rally as a result of their programs, and with it they weakened the dollar. But now the dollar has hit its key rising trend, a trend in place since 2011.

The unthinkable: The dollar rises from here against all expectations defending its trend and if that happens, then this rally driven by liquidity and currency destruction will find itself subject to a very different environment, perhaps one of rebalancing. The good news for bulls in the short term may be that the US dollar tends to flirt with that lower trend line for a while before kicking off, remember it’s a weekly chart, but it just tagged its trend line so notice has been served which suggests it may reverse trend at any time. And if it does, then this super bullish chart may find itself at serious odds with a market that advertises itself to be super bullish on paper, but underneath is not.

*  *  *

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Not long after the turn of the century, real estate emerged as America’s preferred “investing” asset class and shortly thereafter the US saw the biggest housing bubble in history, followed quickly by a devastating crash which also destroyed the stock market. Perhaps as a result, for about a decade, Americans were not really sure where to deposit their hard earned savings and instead were collecting a generous 0.00% in interest (courtesy of the Fed) on their cash parked at the bank.

Well, that period appears to be ending., and according to a new Bankrate survey, stocks are back on top in America’s heart, as nearly 28 percent of Americans point to the stock market as the best way to invest over a period of 10 years or more, more than any other option.

The survey also found that real estate was a close second, with 26 percent of Americans naming it as their preferred investment over a decade or more. Stocks’ performance in the survey was up from 20 percent of respondents who said they preferred it in 2019, when real estate was the top investment choice. In 2018, stocks garnered 32 percent of the vote.

“Despite stocks falling by more than one-third in just over a month at the outset of the pandemic, more Americans point to the stock market as the best place to invest money long-term,” says Greg McBride, CFA, Bankrate chief financial analyst. “The swift rebounds this spring and following a 20 percent decline at the end of 2018 have convinced more investors of the market’s long-term merits.”

Bankrate surveyed 1,007 American adults from June 29 to July 5 about their investment preferences. Below are the main findings from the survey.

Key takeaways:

• Stocks are the most popular long-term investment, with nearly 28 percent of Americans naming them as their preferred method.
• The coronavirus is affecting how Americans invest, with 42 percent saying that they’re changing their behavior, becoming either more or less aggressive.
• The Silent Generation was the most likely age group to prefer stocks, with 43 percent naming it their top pick, and the least likely to favor real estate, with only 17 percent.

Stocks are the most popular long-term investment

The Bankrate survey showed that stocks topped the list of Americans’ favorite investments, garnering almost 28 percent of respondents. Real estate ran a close second, with 26 percent of Americans citing it as their top long-term investment. Real estate’s performance was down from 31 percent in 2019, and fell within the range of the past eight years of polling, McBride says.

The remainder of the responses came back as the following:

Cash investments came in at 18 percent, down from 19 percent last year, hitting the lowest level in eight years of polling, McBride says. At 14 percent, gold and other precious metals was up for the second straight year. Bonds and bitcoin were cited by just 4 percent of Americans, while 5 percent said either none of these investments, didn’t know or refused to answer the question.

The coronavirus is affecting the choice of top investment

A plurality of Americans, 42 percent, said the coronavirus pandemic will change their investment approach. About 26 percent said they will invest less aggressively as a result, while about 16 percent said they will become more aggressive over the long term.

However, a majority of Americans, about 57 percent, said the coronavirus won’t affect their long-term investment strategy.

Of those who did not select the stock market as the best way to invest long term, more than half (54 percent) cite the coronavirus as either a major or minor reason, including 34 percent who said it was a major reason for their decision.

Respondents who chose bonds or gold as their preferred long-term investment were the most likely to cite the pandemic as the reason they are steering clear of stocks, with 43 percent in both cases citing it as a major reason.

Investors who selected either bonds or bitcoin were the only groups where a majority said they would change their long-term investment strategy – either more or less aggressive – due to the coronavirus pandemic.

Survey results by age group, gender and income

The results by age group differed sometimes from the overall figures. For example, younger millennials (ages 24-30) were the least likely to prefer the stock market for long-term investments and instead preferred real estate (30 percent). In contrast, older millennials (ages 31-39) showed among the highest preferences for the stock market (33 percent) and among the lowest for real estate (19 percent).

That divide was beaten only by the silent generation, which preferred the stock market at the highest rate (43 percent) and real estate the lowest (17 percent).

Among age groups, Generation X cited cash as a preferred long-term investment the most (22 percent), though overall it still preferred stocks and real estate about equally at 26 percent.

About 1 in 4 millennials (24 percent) said the coronavirus pandemic will prompt them to invest more aggressively over the long term, compared with 16 percent of Gen Xers, 7 percent of baby boomers, and 4 percent of the silent generation.

Men and women were relatively close in their preferences for stocks (30 percent to 26 percent, respectively) and real estate (27 percent and 25 percent, respectively). They differed markedly in their preferences in two areas:

• Cash: Women preferred cash (23 percent) more than men did (13 percent).
• Gold and other precious metals: Men preferred these (19 percent) as an investment more than women did (9 percent).

Nearly 20 percent of households with income below $50,000 annually say they plan to invest more aggressively in the next decade as a result of the pandemic. In contrast, about 12 percent of those reporting more than $50,000 said they would invest more aggressively.

Cash is fine for the short term, but stocks are better long term

Americans’ preference for cash as a long-term investment is now at its lowest level in the eight years of this Bankrate survey. The switch away from low-yielding cash should ultimately be a net positive for their returns…. at least until the next crash that is.

“While cash is the best place to park money for the short term, it is a very poor long-term investment,” McBride says. “Whether it is falling interest rates or better returns elsewhere, more Americans are getting that message, with fewer citing cash as the best long-term investment than at any time in the past eight years.”

Methodology

This study was conducted for Bankrate via phone interview by SSRS. Interviews were conducted from June 29-July 5, 2020, among a sample of 1,007 adults. Data are weighted and are intended to be representative of all U.S. adults, and therefore are subject to statistical errors typically associated with sample-based information.

If one looks at sto(n)ks, it appears that nothing can dent their relentless ascent as virtually everyone is now convinced that central banks will never again allow even a modest correction and so even the slightest dip is bought with reckless abandon… or rather a handful of stonks are bought now that the S&P500 is the S&P5.

And while the VIX remains elevated, sliding to the mid-20s in recent days and finding it challenging to descend further, the market’s technicals and internals show that there is little pent up imbalance. Indeed, according to Nomura quant Charlie McElligott, after last month’s near-record Op-Ex, things are far more calm now and “3300 looks like the truth in Spooz, with nearly double the aggregate $Gamma ($4.5B) of the next closest line (3250 with $2.4B) as we head into expiry, thus exhibiting some “gravity” with Spooz up nearly 90 handles in just over 3 sessions and right between these two big strikes (ref 3277).”

Providing an additional layer of comfort is that SPX/SPY options Dealers are very long Gamma and are In the Money, with Nomura not expeting much of drop in Gamma afterwards as only 14% of options come-off post-expiry

It’s slightly more exciting in the tech space, where not only do investors remain really long (with Delta in the 90th percentile) but we also see nearly 31% of the Gamma coming-off after expiration “so it is likely opening-up to a larger distribution of outcomes range thereafter (in either direction)” according to McElligott.

Still, absent a major exogenous shock, op-ex should be a non-event with the drift higher likely to continue.

So are there any risks on the immediate horizon in an economy that just plunged (and emerged) from the deepest and fastest recession in history? Well, according to Nomura there is one red flag that is about to emerge on the horizon, and it has to do with bonds. 

To be sure, nothing is imminent, with McElligott noting that “the grind continues” in Treasuries and rates, “where the Fed’s ZIRP in perpetuity and soul-crushing fwd guidance has simply beaten traders into submission and smothering rate vol, as we see further incremental bull-flattening yet again overnight.”

Yet while everyone is just as certain that yields will only sink lower, McElligott counters that precisely because of that, a spike in yields would be “the largest pain-trade in the world”, one which sends shockwaves across both equities (Value vs Growth) rotation and Commodities (send gold tumbling). As the Nomura quant explains, a spike in yields would trigger counter-moves across the asset spectrum:

1. Gold’s recently “grabby” vertical move as everybody owns it now (real yields higher would mean gold lower), with any potential bond selloff also likely to:
2. trigger a reversal in crowded legacy US Eq “Growth” factor over “Value” positioning as well (particularly into any bear-steepening, which sees “Value” benefit to the pain of “Momentum”)

Of course, this is hardly rocket science and so many have proposed just this counter trade only to be carted off feet first as yields continued to grind lower. However, what is novel in McElligott’s thesis is that a specific catalyst is coming as soon as September that would precipitate said “largest pain-trade in the world.” Below are his observations:

… in light of this currently “bulletproof” bond market, what could possibly act as catalyst for a selloff? After all, August over the past 15 years has been the single strongest 1m return period for TY, especially as supply dwindles into this “peak holiday” month…alongside the recent tendency for “vol events” into August’s “peak illiquidity,” with the VIX also seeing its strongest 1m return period in August over the same 15 year window—supportive of “flight to safety” USTs.

So if not August, then when? Well, as the Nomura quant answers, “the key window then for a UST bond selloff becomes September (and Q4 thereafter)”  because that’s when traders and bankers come back from vacation, and the result is a flood of new bond issuance which is “likely to tilt the supply/demand dynamic finally in favor of tactical “bears” when traders return following the Labor Day holiday.”

Here McElligott quotes fellow Nomura strategist Darren Shames who discussed this dynamic earlier in the week, snapshotting the previous four Septembers in particular (also worth noting that September is the 2nd weakest month of TY returns on average over the past 15 years,which is at least a partial function of the same “issuance impulse”):

“IG issuance this month is running at 30% of June’s pace, and August is traditionally a slow month for issuance given vacations, so I wouldn’t be surprised to see corporate issuance ramp back-up in a meaningful way come September.  This issuance in conjunction with the ongoing steady deluge of government supply could prove to be the catalyst for a revisit to the upper-band of the recent yield range.”

And some recent historical observations:

• In ’19, September was the largest month for IG issuance, predominantly traditional corporates and SSA’s (10yr notes sold off 40 bps in first two weeks in Sep, and finished the month 16bps cheaper.  The extreme repo blow-out during this period was also a big part of the move)
• In ’18, Sep was 2nd largest month for IG issuance (10yr notes sold off 14 bps in first two weeks in Sep, and finished the month 20bps cheaper)
• In ’17, Sep was 4th largest month for IG issuance (10yr notes sold off 6 bps in first two weeks in Sep, and finished the month 22bps cheaper)
• In ’16, Sep was 3rd largest month for IG issuance (10yr notes sold off 11 bps in first two weeks in Sep, and finished the month 2.5bps cheaper)

The Nomura analysts then highlighted that the YoY change in issuance trend with regard to supply maturity, “which has seen paper shift out on the curve to an average life greater than 10 years, and therefore a further steepening catalyst:”

Not helping is that longer curves and duration have been highly correlated over the past few months, meaning that “sell-offs and steeping have been largely “one in the same” (particularly as YTD issuance has hit long-end, while Fed has pinned yields under 5Y).”

As McElligott summarizes, “so after this likely expected “issuance impulse” tilts the supply/demand dynamic into the start of Fall (and barring another de-stabilizing vol-event from COVID-19, US Elections, US / China), I believe the next headwind for USTs/Rates would likely need to originate out of the Equities market, particularly with the powerful historic Q4 “risk-ON” seasonality.”

One final point validating McElligott’s concern about a September rate-led domino effect is that as the table below shows, the largest positive macro factor drivers for US Equities around this time of year are steeper curves in conjunction with higher inflation expectations and commodities as part of the same feedback-loop:

Taking all of this into account, McElligott expects a major “pain trade” triggered by a spike in rates to emerge just after the anticipated August rally peak which then plays for “a tactical September UST reversal lower/curve bear-steepening/higher Rate vols –trade” which would spark chaos across all markets, as it would go hand-in-hand with a “Value over Growth” trade in US stocks in September/Q4 as well, per the bond selloff and pro-cyclical Sep-Dec cross-asset seasonality, which the Nomura strategist believes is best to trade by buying outright Calls in “Cyclical/Value” sectors.

As the CEOs of the big platform tech giants prepare to sit for a (virtual) Congressional hearing later this month, that multiple states are investigating the consumer tech giant for allegedly deceiving customers, according to documents obtained by Axios.

The Cupertino-based tech behemoth is no stranger to investigations despite its sterling reputation. The company is already facing antitrust investigations from Democrats in the House, as well as the European Union (though a judge recently struck down a finding that would have forced Apple to pay billions of dollars in back-taxes to the government of Ireland.

States have also stepped up their scrutiny of Big Tech, and multi-state probes looking into Amazon and Google have already been announced.

AAPL shares sank on the news as tech cemented its position as the biggest laggard of the session.

Axios added that the Texas attorney general might sue Apple for violating the state’s deceptive trade practices law in connection with an investigation involving other states, according to the document, obtained by the Tech Transparency Project through a public records request and shared with Axios Thursday.

A spokesperson for Texas AG Ken Paxton’s office purportedly told Axios that it’s “A long-standing OAG policy” not to “comment on, confirm or deny any pending or potential investigations. It’s still not clear which other states might be involved. “

With stocks weak all day, and accelerating to the downside in the afternoon, some were wondering when Jerome “Jay” Powell would answer Steve Mnuchin’s phonecall.

pic.twitter.com/hWMRux1zbC

— zerohedge (@zerohedge) July 23, 2020

Well, it took it’s sweet time, but at exactly 2:30pm the Fed fired a warning shot at all the racist criminals known as “sellers” when it announced that it had “broadened the set of firms eligible to transact with and provide services in three emergency lending facilities.”

Encouraging a broader range of agents for the Term Asset-Backed Securities Loan Facility (TALF) and counterparties for the Commercial Paper Funding Facility (CPFF) and Secondary Market Corporate Credit Facility (SMCCF) will increase the Federal Reserve’s operational capacity and insight into the respective markets.

The TALF, CPFF, and SMCCF are facilities created under section 13(3) of the Federal Reserve Act, established with the approval of the Treasury Secretary and with equity investments provided by the Treasury to help support the flow of credit to households, businesses, and the broader economy.

The TALF, CPFF and SMCFF are all some of the “illegal” 13(3) facilities that the Fed needed an explicit permission from the Treasury to enable, as their sole purpose was to prop up risk assets. As of last Thursday, there was roughly $160 billion in 13(3) facilities outstanding, and while the total notional was shrinking due to lack of demand…

… apparently the Fed decided that the only reason there is not even more demand, is because the program is too… limiting, and so it decided to expand the list of counterparties. The signal was clear: any more selling and the Fed starts buying stonks.

Joking aside, here is the list of Term Sheets Fedsplaining just what Powell plans on doing next, so please frontrun it so you too can enjoy life like this.