[Market Madness] Edition 0111
Stocks Go Down?
Holding the bag
Administrative topics and a general market recap
Well folks, we can confirm that stocks, indeed, do go down sometimes. This, most likely left many investors who were riding high on the ‘miracle rally’ holding the bag as their positions declined. More information broke on Friday about the new ‘whale,’ the “NASDAQ Whale” who led the big push upward in market prices. Market participants who rode the rally and took their profits before the drop, I just have one thing to say; “nice trade, dude!”
Stocks had a strong start to the week, continuing to test upper bounds before tumbling on Thursday and again but less so on Friday. Both Apple and Tesla have performed very poorly post-split, and Tesla is also reeling because they were not chosen to join the S&P 500, an action Elon thought was without doubt. In commodities, gold remains high (still shy of $2,000/ounce) and oil fell back under $40 per barrel.
Today’s edition will take a look at what happened in the markets this past week, a handful of new economic data points, and tying up some loose ends from week’s prior that were interesting stories as well.
Here are some general themes that we will cover off on in this edition:
Market breadth
Macroeconomics
IPOs
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In the meantime, if you are interested in my thought process throughout the week as I collect news and ideas for the Sunday publication, please check out my Walling page where I brainstorm and mind-map each week’s edition!
Fundamentals
Where did the markets end last week?
U.S. Indices 5 Day Performance
Dow Jones: -1.82%
S&P 500: -2.27%
NASDAQ: -3.27%
Asia and Europe 5 Day Performance
Nikkei 225: +1.41%
Hang Seng: -2.86%
FTSE 100: -2.76%
DAX: -1.46%
Rates, Spot Prices, and ‘Good to Knows’
U.S. Dollar Index: 92.97
US 10 YR: 0.721%
Crude OIL: $39.42
Spot Gold: $1,932.80
Market Madness Portfolio: +6.56% YTD
TEDRATE: 0.14
LIBOR (3 month): 0.249%
COVID 19 Global Cases: 26,918,965 (updated Sept. 06, 2020)
Market and economic recap
Stock market talks
What goes up, must eventually come back down. Even though finance exists largely in the cloud and on computers, Newton’s law clearly still applies. But what is interesting is that it does not appear to apply across the board. Yes, there is still concern on my end for the lack of market breadth in support behind the actual markets. I mean take a look at this:
This was captured on Thursday, so the data looks even worse after factoring in Friday’s losses too. The so called “Fab 5” (Alphabet, Amazon, Apple, Microsoft, and Netflix) or 5 mega-cap stocks had lost about $900B in market value by Friday’s close.
The first half of the week was smooth sailing, as the Dow Jones flirted with 29,000 levels and the NASDAQ and S&P 500 continued pushing upper limits. But then Thursday and Friday brought things back to earth. Those within the markets are still trying to figure out what caused the reversion, and some early news on Friday points to SoftBank’s big call options play on the tech sector. The opening of trading this upcoming week should be telling of market momentum for the week, indicating where stocks might be heading.
Economic data
On the economics side of the house, things are improving. The jobs report for August beat expectations (1.37 million actual versus 1.32 million expected) and unemployment dropped to 8.2% compared with expected 9.8%. Major employment gains were noted in the government, retail, and health services sectors. Similarly, the new jobless claims for this past week came in below expectations (881,000 actual versus 950,000 expected), showing some more healing occurring within the labor market. These data points indicate that the bigger picture trend could be moving a better direction. Worries still swirl around the fact that unemployment remains drastically higher than pre-pandemic levels. Additionally, economists are still battling with trying to understand how many of the temporary job losses will be recovered and how many will be lost with the virus. Another challenge is the continued levels of initial new jobless claims which, although decreasing week over week, are still drastically high when compared to normal (pre-COVID) levels.
Read more here, here, here, here, here, and here.
IPOs are popping in 2020
It goes without saying that 2020 is a highlight year for many reasons. This time, we’re going to look at the performance of IPO (Initial Public Offering) stocks so far this year. In the beginning of the year, the market for IPOing was pretty sour during the large market selloff, which is common. But once the market bounced and took off, the market primed itself for the unveiling of IPO after IPO. A bullish (red hot) equity market is the first step to seeing a large mass of IPO filings. The next thing needed for an IPO palooza is clear indicators of outperformance, which we also saw in this latest round of IPO runs. This go around, a CNBC article cites that nearly 70% of IPOs are trading above their issue price, which is well above the average of 50% of IPOs that trade above their issue price following the post-IPO price-run.
The third thing needed, per the CNBC article, is a clear ‘pipeline,’ or target market to IPO for. This go around, it was tech. The tech sector was the first to bounce-back and move into all-time high territory following the March selloff. This was largely attributed to the majority of business and life having to adapt to online settings to make work and connection possible. Being in such a hot market, it is easy to launch oneself as a new IPO when the market is buying anything and everything tech.
At the tail end of this week, all the markets (particularly tech) took much of the run-up profits and left the market. It will be interesting to see what happens in the remainder of the year regarding the level of IPOs as well as the continued eyes on market performance like we talked about above.
Read more here.
Quick Takes
To fill in the gaps
Boeing and Coca-Cola asked to disclose to the SEC more about their ‘supply chain finance’ practices. (via WSJ)
Tesla tumbles after stock split, and then falls more after not getting the invite to the S&P 500. (via CNBC and CNBC)
Berkshire Hathaway making bets on Japanese companies, making $6 billion in stakes. (via WSJ)
SPACs making news again, this time as a Bill Gates-backed EV battery company looks to go public. (via CNBC)
U.S. debt set to exceed size of economy in 2021, first time since WWII. (via WSJ)
Donnie’s payroll tax: what we know so far. (via CNBC)
Robinhood under SEC investigation, could face $10 million fine. (via CNBC)
TikTok still making headline news, this time over its algorithm. (via WSJ)
New stimulus talks continue to drag on with no hope in sight. (via CNBC)
Xpeng, a Chinese Tesla rival launched a U.S. IPO raising $1.5 billion. (via WSJ)
General Banter
What’s on my mind
This is truly strong, interesting, and disturbing journalism. Jeffrey Goldberg is truly a remarkable journalist and cuts through the fog to present very strong news. Please enjoy Trump: Americans Who Died in War Are ‘Losers’ and ‘Suckers’ from The Atlantic.
Reader’s Corner
A place for suggestions
The reader might be interested in reading more about how the major shifts in oil pricing have affected those involved in the market at large. Read that article here.
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Behind the Madness
You’ve made it through the madness. I’ve worked really hard to ensure that you leave this page having learned something, and I hope that benefits you in your daily adventure. Thank you again for checking in.
Publishing Schedule: every Sunday
In the meantime, if you are interested in my thought process throughout the week as I collect news and ideas for the Sunday publication, please check out my Walling page where I brainstorm and mind-map each week’s edition!
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