[Market Madness] Edition 0105
Jobs, Jobs, Jobs
A day on mute
Well folks, the jobless claims data from last week shows some better than expected results. The claims came in just over 1.1 million, well below the 1.4 million expectation from the Street. This news, in tandem with the continued wait for fiscal stimulus has left markets relatively quiet today, only trading slightly above/below their opens. Microsoft decided they’re now interested in purchasing TikTok’s global operations. Markets moved into the green around midday, hoping to hold onto some gains for the day as a lot still hangs in the balance.
Overseas, we saw selloffs in the major markets — likely a continuation of mixed forward looking economic forecasts and COVID 19 cases. Turkish Lira hits record lows against the USD as some suggest a currency crisis might be on the horizon. In commodities, gold is up and oil is down on the day. Volatility moved down today as well.
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Fundamentals
Thursday’s Close:
Dow Jones: +0.68%
S&P 500: +0.64%
NASDAQ: +1.00%
U.S. Dollar Index: 92.80
US 10 YR: 0.538%
Crude OIL: $42.00
Spot Gold: $2073.30
Market Madness Portfolio: +0.60%
COVID 19 Global Cases: 18,897,857
Indices Overseas:
Nikkei 225: -0.43%
Hang Seng: -0.69%
FTSE 100: -1.30%
TEDRATE: 0.15
LIBOR (3 month): 0.24200%
Everything’s in fraction
We’ve dabbled with this topic here and there, but never really dove into the ideas driving this new and popular trend: fractional shares. First, the major trend that shook and disrupted the retail trading space was commission-free trading. This allowed investors to save some cash on the buying and selling of securities — particularly those who were looking to get into full-time, or even part-time day trading. (If you’re wondering how apps like Robinhood make money without the commissions on trades, you can find more on that here.)
Now, the biggest trend in the stock-trading platform space is fractional share trading. Essentially, this means that (for stocks and other securities that allow it) you can purchase a ‘slice’ of a share of a company with as little as $5. What is the motivation behind this? Well, it allows just about anyone to get into the markets and invest in companies that have very high share prices, (companies like Tesla, Amazon, or even Apple (pre-split)).
*Fractional investing is technically not a new idea, since dividend reinvestment for a long time prior had allowed for the same thing. This time around, you don’t need the full share first to enable the fractional share buying that happens with dividend reinvesting*
This notion of enabling even the most novice investor to have investments in such prestigious companies with high stock prices — which back in the day served as a barrier between ‘high-cash’ sophisticated investors and more novice ‘low-cash’ investors — is what is considered an element of the democratization of financial markets.
Fractional shares have taken the accessibility of securities and diversification and expanded upon what ETFs originally did. ETFs, Exchange Traded Funds, are “a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies.” (excerpted from article). These funds were beneficial because you can invest in the S&P500 ETF ($SPY) today for a little over $300, instead of purchasing every stock within the S&P 500 index, which would cost you a ton more money. For people who want to invest in a strategy that tracks the market exactly, or involves the market index plus other investments for diversification, the ETF space allows people to do so for much less of a starting investment.
Taking a step back and looking at how fractional investing has changed the investing space is where things get a little interesting. Now, there is most likely a lot of research in this space about the true impacts, but I am going to use my knowledge and a little bit of assuming to speculate about how this has impacted the markets.
The good:
Breaks barriers that would block out low-cash investors from profitable and strong companies that have large share prices.
Allows low cash investors to partake in diversification more easily due to smaller ownership ‘slices.’
The bad:
Increased volatility and spikes in prices with more novice investors looking to pile cash into trends they see in the news (i.e. Kodak, Tesla, you name it).
Investing is not gambling and should not equally resemble buying a $5 scratch ticket. That is what the lottery and casinos are for.
The ugly:
As many have written about and I agree with, investing has always been considered ‘hard’ and that is for a good reason. As mentioned in “the bad,” investing is not the same thing as casino play — there are bigger themes in play. Owning equity in a company signals a vote of confidence in a firm, allowing the firm to use your investing money to generate revenue, net income, and eventually dividends as repayment for your vote of confidence.
(Hot Take / Personal Opinion Warning) Then there is this fool (Dave Portnoy), who has tried to convince many people that Warren Buffett is stupid and day-trading is just high octane gambling.
Putting these two points together, there appears to be a blatant lack of research into company fundamentals and appears more to be just herd mentality. Kodak, for example, has very shoddy and questionable fundamentals at the moment (questionable ability to service interest payments, past bankruptcies, no experience in the pharma space, etc) which certainty do not warrant any level of the stock price spike the firm saw. When you ignore the fundamentals, often times you will get burned in the end.
I definitely do not feel I have all the answers ever, nor within this particular topic. Would love to hear others’ thoughts and ideas about this topics and some of the good/bad/ugly trends I’ve noted.
Read more here.
Quick Takes
Weekly U.S. jobless claims hit low level last week with 1.186 million versus estimated 1.4 million. (via CNBC)
All is well after ‘largest’ ETF stress test. (via FT)
As always, here is the latest on stimulus. (via CNBC)
Donnie aims to throws his hands into big pharma cookie jar with latest executive order. (via CNBC)
Turkey’s currency scare. (via FT)
Goldman Sachs doubles down on Bitcoin as future of financial assets. (via CNBC)
More on Rocket Companies’ upcoming IPO. (via WSJ)
Microsoft goes global on TikTok deal. (via FT)
American’s credit card balances plunged by $76 billion in Q2. (via Heisenberg Report)
General Banter
I am banter-less today. Enjoy the brief respite.
Reader’s Corner
The reader’s corner is quiet today - continue as you would.
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