Tag Archives: Stock Market

The Zombification Of America – Over 40% Of Listed Companies Don’t Make Money

It’s absolutely stunning how the Fed/ECB/BoJ injected upwards of $1.1 trillion into global markets in the last quarter and cut rates 80 times in the past 12 months, which allowed money-losing companies to survive another day. 

The leader of all this insanity is Telsa, the biggest money-losing company on Wall Street, has soared 120% since the Fed launched ‘Not QE.’

Tesla investors are convinced that fundamentals are driving the stock higher, but that might not be the case, as central bank liquidity has been pouring into anything with a CUSIP

The company has lost money over the last 12 months, and to be fair, Elon Musk reported one quarter that turned a profit, but overall – Tesla is a black hole. Its market capitalization is larger than Ford and General Motors put together. When you listen to Tesla investors, near-term profitability isn’t important because if it were, the stock would be much lower. 

The Wall Street Journal notes that in the past 12 months, 40% of all US-listed companies were losing money, the highest level since the late 1990s – or a period also referred to as the Dot Com bubble.

Jay Ritter, a finance professor at the University of Florida, provided The Journal with a chart that shows the percentage of money-losing IPOs hit 81% in 2018, the same level that was also seen in 2000. 

The Journal notes that 42% of health-care companies lost money, mostly because of speculative biotech. About 17% of technology companies also fail to turn a profit. 

A more traditional company that has been losing money is GE. Its shares have plunged 60% in the last 42 months as a slowing economy, and insurmountable debts have forced a balance sheet recession that has doomed the company. 

Data from S&P Global Market Intelligence shows for small companies, losing money is part of the job. About 33% of the 100 biggest companies reported losses over the last 12 months. 

Among the smallest 80% of companies, there has been a notable rise in money-losing operations in the last three years.

“The proportion of these loss-making companies rose after each of the last two recessions and didn’t come down again afterward. The story should be familiar by now: Many small companies are being dominated by the biggest corporates, squeezing them out of markets and crushing their ability to invest for growth,” The Journal noted.

And while central bank liquidity has zombified companies, investors are already starting to make a mad dash out of trash into companies that turn a profit ahead of the next recession.

Source: ZeroHedge

Goldman Sachs Has Just Issued An Ominous Warning About Stock Market Crash In October

Are we about to see the stock market crash this year?  That is what Goldman Sachs seems to think, and it certainly wouldn’t be the first time that great financial chaos has been unleashed during the month of October.  When the stock market crashed in October 1929, it started the worst economic depression that we have ever witnessed.  In October 1987, the largest single day percentage decline in U.S. stock market history rocked the entire planet.  And the nightmarish events of October 2008 set the stage for a “Great Recession” that we still haven’t fully recovered from.  So could it be possible that something similar may happen in October 2019?

The storm clouds are looming and disaster could strike at any time.  This is one of the most critical times in the history of our nation, and most Americans are completely unprepared for what is going to happen next.

This Time Is Different

Bubble Burst? Smart Money Flow Index Continues To Decline To 1995 Levels

The Smart Money Flow Index, measuring the movement of the Dow in two time periods: the first 30 minutes and the last hour, has just declined AGAIN.

https://confoundedinterestnet.files.wordpress.com/2018/11/smartdow.png

The Smart Money Flow Index, like the DJIA, has been around for decades. But it has just fallen to the lowest level since 1995.

https://confoundedinterestnet.files.wordpress.com/2018/11/smfdow31.png

Is the asset bubble starting to burst? Or is it just one lone indicator getting sick?

https://confoundedinterestnet.files.wordpress.com/2018/11/008-sick-of-this-party-2132469.jpg

Source: Confounded Interest

September YoY Home Sales Down 13.2%, Median Price Down 3.5%, S&P Down 6.5% From High

New Home Sales (SAAR) in September plunged to their lowest since Dec 2016, crashing 5.5% MoM (and revised dramatically lower in August)… Maybe Trump has a point on Fed rate hikes?

Remember this is the first month that takes the impact of the latest big spike in rates – not good!

This is a disastrous print:

August’s 629k SAAR was revised drastically lower to 585k and September printed 553k (SAAR) massively missing expectations of 625k (SAAR) – plunging to the weakest since Dec 2016…

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-24_7-02-08.jpg?itok=o2oEP3n7

That is a 13.2% collapse YoY – the biggest drop since May 2011

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-24.png?itok=mO5y0zJX

The median sales price decreased 3.5% YoY to $320,000…

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-24%20%281%29.png?itok=hgp-Zkpa

New homes sales were down across all regions … except the midwest.

https://confoundedinterestnet.files.wordpress.com/2018/10/nhstable.pngSource: Confounded Interest

As the supply of homes at current sales rate rose to 7.1 months, the highest since March 2011, from 6.5 months.

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-24%20%282%29.png?itok=kft0a499

The decline in purchases was led by a 40.6 percent plunge in the Northeast to the lowest level since April 2015 and 12 percent drop in the West.

Source: ZeroHedge


70% Of S&P 500 Stocks Are Already In A Correction

Spooked by fears about peak profits, the slowing Chinese economy, Trump’s tariffs, ongoing political turmoil in the UK and Italy, and ongoing jitters among systematic, vol-targeting funds, on Tuesday the S&P tumbled as much as 2.34% in early trade – a drop which almost wiped out all gains for the year – before paring losses and closing only -0.55% lower. The drop pushed the S&P’s decline from its September highs to 6.5%, two-thirds on the way to a technical correction.

https://www.zerohedge.com/sites/default/files/inline-images/S%26P%20from%20highs.jpg?itok=qhSNB0d4

However the relatively stability at the index level has masked turmoil among individual names where some 1,256 stocks hit 52-week lows, while only 21 establishing new highs.

https://www.zerohedge.com/sites/default/files/inline-images/Blood%20on%20Wall%20St.PNG?itok=Om2dtkhx

More concerning, and a testament to the tech-heavy leadership of the market concentrated amid just a handful of stocks, is that while the broader S&P 500 index has yet to enter a correction, more than three quarters of all S&P stocks – or 353 – have already fallen more than 10% from their highs. Worse, of those, more than half 179 have already fallen by 20% or more from their highs, entering a bear market.

https://www.zerohedge.com/sites/default/files/inline-images/stocks%20reuters%201.PNG?itok=5eZQDzEv

The reason why the broader index has so far avoided a similar fate is because Apple, whose $1 trillion market value makes it by far the most heavily weighted stock within the S&P 500, has fallen only 4.6% from its October 3 record high. That has helped the S&P 500 itself stay out of correction territory.

Broken down by sector, the S&P 500 materials index – the closest proxy of Chinese economic growth – has fared the worst in October, leaving it down 19% from its 52-week highs, with the utilities index is the outperformer, down just 5 percent.

https://www.zerohedge.com/sites/default/files/inline-images/Sectors%20vs%2052-week%20highs.PNG?itok=N1dR9Xc5

At the individual level, among the bottom 10 S&P 500 performers, are names likes Wynn Resorts and Western Digital, both highly exposed to China. Nektar Therapeutics and Newell Brands are also among the S&P 500’s worst performers.

https://www.zerohedge.com/sites/default/files/inline-images/Stocks%20furthest%20from%20highs.PNG?itok=t0do72Y-

Taking a step back, despite its relative resilience, the S&P 500 is still on track for its worst month since August 2015, while most global equities are down for the year. North America is still the best performing region with 67% of the six countries having benchmark equities trading higher on the year in US dollar terms, according to Deutsche Bank. In EMEA, only 23% of countries are up, and only 6% of countries in the European Union (in USD). In South American (6 countries) and Asia (18), not a single country has a positive return in USD terms this year.

One day later, and despite widespread call for an imminent market bounce, traders remain completely ambivalent as today’s market cash open action shows:

  • Half of S&P 500 stocks rising, half falling
  • 5 of 11 S&P 500 groups rising, 6 falling
  • 15 DJIA stocks rising, 15 falling

Meanwhile, the Nasdaq has a more negative tone with decliners outpacing advancers. In other words, as Bloomberg’s Andrew Cinko writes, “there’s no follow through on either the upside or the downside after yesterday’s epic rebound. At this moment, he who hesitates isn’t lost, in fact, he’s got a lot of company as stock market pundits engage in verbal duel over where we go from here.”

Source: ZeroHedge

Insider Selling Soars In “Cautionary Sign” To Market

One month ago, when Apple finally crossed above $1 trillion in market cap, Goldman’s chief equity strategist David Kostin said that investors had been focusing on the “wrong $1 trillion question”, adding that the correct question was: what amount of buyback will companies authorize in 2018? The reason was that according to the latest estimate from Goldman’s buyback desk, stock buyback authorizations in 2018 had increased to a record $1.0 trillion – a result of tax reform and strong cash flow growth – a 46% rise from last year.

https://www.zerohedge.com/sites/default/files/inline-images/buybacks%20goldman%201%20trillion.jpg

The upward revision was warranted: according to TrimTabs calculations, buyback announcements swelled to a record $436.6 billion in the second quarter, smashing the previous record of $242.1 billion set just one quarter earlier, in Q1. Combined, this meant that buybacks in the first half totaled a ridiculous $680 billion which annualized amounted to a staggering $1.35 trillion, indicating that Goldman’s revised estimate may in fact be conservative.

Furthermore, with many strategists warning that August could be a volatile month, Goldman remained optimistic noting that  “August is the most popular month for repurchase executions, accounting for 13% of annual activity”, implying that a solid buyback bid would support the market in a worst case scenario which never materialized as the S&P rose to a fresh all time high at the end of the month.

https://www.zerohedge.com/sites/default/files/inline-images/buybacks%20goldman.jpg

Based on the Goldman data and estimates, it is probably safe to say that August was one of the all-time record months in terms of buyback activity. That companies would be scrambling to repurchase their stock last month was not lost on one particular group of investors: the corporate insiders of the companies buying back their own stocks.

According to data compiled by TrimTabs, insider selling reached $450 million daily in August, the highest level this year; on a monthly basis, insiders sold more than $10 billion of their stock, the most of any month this year and near the most on record.

https://www.zerohedge.com/sites/default/files/inline-images/insider%20sales%20aug%202018.jpg?itok=EntYYHSK

“As corporate buying is at least taking a breather, corporate insiders are ramping up share selling as the major U.S. stock market averages are at or near record highs,” TrimTabs wrote in a note.

In other words, as insiders and management teams authorized record buybacks, the same insiders and management teams were some of the biggest sellers into this very bid, which one would say is a rather risk-free way of dumping their stock without any risk of the clearing price declining. It also suggests that contrary to prevailing expectations, stocks are anything but cheap when viewed from the lens of insiders who know their own profit potential best.

There is another consideration: September is traditionally the most volatile month for the stock market (especially the last two weeks), and it may be the insiders are simply looking to offload their holdings ahead of a potential air pocket in prices.

As CNBC further notes, September is usually the worst month for stocks, possibly explaining why corporate executives sold so much stock last month. Data from the “Stock Trader’s Almanac” show the S&P 500 and Nasdaq both fall an average of 0.5% in September. The Dow Jones Industrial Average, meanwhile, averages a loss of 0.7% in September.

TrimTabs summarizes this best:

“One cautionary sign for U.S. stocks is that corporate insiders have accelerated their selling of U.S. equities,” said Winston Chua, an analyst at TrimTabs. “They’ve dedicated record amounts of shareholder money to buybacks but aren’t doing the same with their own which suggests that companies aren’t buying stocks because they’re cheap.”

Finally, as we noted yesterday, the September selling may have started early this year in an ominous sign for the rest of the month:

it’s already been a tough start to the month of September for the S&P 500, which has fallen for the fourth day in a row. This is notable, as LPL Financial notes “going back to the Great Depression, only two times did it start down the first four days. 1987 and 2001.

And with insiders dumping a near record amount of stock, it may be the case that the selling is only just getting started.

 

Source; ZeroHedge

Excluding FAANG Stocks, The S&P Would Be Negative

Two weeks ago, Goldman made a surprising finding: as of July 1, just one stock alone was responsible for more than a third of the market’s YTD performance: Amazon, whose 45% YTD return has contributed to 36% of the S&P 3% total return this year, including dividends. Goldman also calculated that the rest of the Top 10 S&P 500 stocks of 2018 are the who’s who of the tech world, and collectively their total return amounted to 122% of the S&P total return in the first half of the year.

And another striking fact: just the Top 4 stocks, Amazon, Microsoft, Apple and Netflix have been responsible for 84% of the S&P upside in 2018 (and yes, these are more or less the stocks David Einhorn is short in his bubble basket, which explains his -19% YTD return).

https://www.zerohedge.com/sites/default/files/inline-images/tech%20performance%20H1%20goldman.jpg

Now, in a review of first half performance, Bank of America has performed a similar analysis and found that excluding just the five FAANG stocks, the S&P 500 return in H1 would have been -0.7%; Staples (-8.6%) and Telco (-8.4%) were the worst.

https://www.zerohedge.com/sites/default/files/inline-images/FAANGs%20bofa%201.jpg?itok=W9oqBHbb

FAANGs aside, here are the other notable sector observations about a market whose leadership has rarely been this narrow:

  • Only three sectors outperformed in the 1H (Discretionary, Tech and Energy). Meanwhile, Staples and Telecom were the worst-performers in the 1H.
  • Energy staged the biggest comeback in 2Q to become the quarter’s best-performing sector after turning in among the worst returns in 1Q.
  • Industrials and Financials notably underperformed in June, the 2Q, and the 1H while Discretionary and Energy outperformed in all three.

https://www.zerohedge.com/sites/default/files/inline-images/bofa%20h1%20by%20sector.jpg?itok=FHIK56Qt

Looking at the entire first half performance, tech predictably was the biggest contributor to the S&P 500’s 1H gain, contributing 2.6ppt or 98% of the S&P 500’s 2.6% total return.

https://www.zerohedge.com/sites/default/files/inline-images/FAANGs%20bofa%202.jpg?itok=4riTYxLJ

The broader market did ok: trade tensions, negative headlines, and the slow withdrawal of Fed liquidity contributed to volatility’s return in June and earlier in February, but the S&P 500 still ended 2Q +3.4% and the 1H +2.6%, outperforming bonds and gold.

The Russell 2000 led the Russell 1000 by 4.9ppt in the 1H as small caps may have benefitted from expectations of a stronger US economy, a strong USD and the sense that smaller more domestic companies are shielded from trade tensions (where we take issue with this notion). However, mega-caps also did well: the “Nifty 50” largest companies within the S&P 500 beat the “Not-so-nifty 450” in the 2Q and the 1H. Non-US performed worst.

Some additional return details by asset class:

  • US stocks outperformed most other asset classes in the 1H, including bonds, cash, and gold.
  • Within equities, the US was the only major region to post positive returns, outperforming non-US equities by 6.1ppt in US dollar terms in the 1H.
  • Amid concerns over global growth, a stronger dollar and trade, coupled with a strong US economic backdrop, small caps outperformed large caps in the 1H.
  • Megacaps also did well: the “Nifty 50” mega-caps within the S&P 500 beat the “Other 450” stocks in 2Q and the 1H.

https://www.zerohedge.com/sites/default/files/inline-images/bofa%20asset%20class%20h1%202018.jpg?itok=rm6exHcj

Performance by quant groups:

  • Growth factors were the best-performing group in the 1H (+6.7% on average), leading Momentum/Technical factors (the second best-performing group) by 1.7ppt while Value factors were among the weakest.
  • Despite the macro risks, the best way to make money was to stick to the fundamentals and own stocks with the highest Upward Estimate Revisions (+12.4% in the 1H), a Growth factor.
  • Low Quality (B or worse) stocks beat High Quality (B+ or better) stocks in June, 2Q and the 1H. But both the lowest and highest quality stocks outperformed the rest of the market in all three periods.

https://www.zerohedge.com/sites/default/files/inline-images/bofa%20quant%20factor.jpg?itok=Vy0wSJvJ

The Russell 1000 Growth Index beat the Russell 1000 Value Index by 9ppt in the 1H, on track to exceed last year’s 17ppt spread. Growth factors were the best-performing group in the 1H (+6.7% on avg.), followed by Momentum factors. But Momentum broke down in June, and June saw the 56th worst month out of 60, -1.4 standard deviations from average returns.

https://www.zerohedge.com/sites/default/files/inline-images/russell%201000%20bofa%20relative.jpg?itok=JcbOK05i

What About Alpha?

Unfortunately for active managers, BofA notes that while pair-wise correlations remain lows, alpha remained scarce. The average pairwise correlation of S&P 500 stocks rose sharply in 1Q with the increased volatility which typically hurts stock pickers, but quickly came down below its long-term average of 26% in 2Q. However, performance dispersion (long-short alpha) continues to trail its long-term average.

https://www.zerohedge.com/sites/default/files/inline-images/pairwise%20bofa%2022.jpg?itok=2FsATdHP

What does this mean for active managers? According to BofA, never has the herding been this profound: since the bank began to track large cap fund holdings in 2008, managers have been increasing their tilts towards expensive, large, low dividend yield and low quality stocks. And today, their respective factor exposure relative to the S&P 500 is near its record level.

https://www.zerohedge.com/sites/default/files/inline-images/large%20cap%20bofa.jpg?itok=EmzXA19Z

This is a risk because as we discussed recently, the threat is that as a result of an adverse surprise, “everyone” would be forced to sell at the same time. As BofA notes, “positioning matters more than fundamentals in the short-term, and this has been especially true around the quarter-end rebalancing. Since 2012, a long-short strategy of selling the 10 most overweight stocks and buying the 10 most underweight stocks by managers over the 15 days post-quarter-end would have yielded an average annualized spread of 90ppt, 15x higher than the average annualized spread of 6ppt over the full 90 days.”

https://www.zerohedge.com/sites/default/files/inline-images/bofa%20posdt%20quarter%20return.jpg?itok=xZPqePPa

Keep an eye on the first FAANG today when Netflix reports after the close.

Source: ZeroHedge

Stocks Suffer Worst Q2 Start Since The Great Depression

Well that really escalated quickly…

After last week’s “paint the tape ahead of a long-weekend” melt-up into the close, the first trading day of the second quarter was a bloodbath… In fact the worst since The Great Depression

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_10-52-02.jpg?itok=Xy96uhjj

As David Rosenberg (@EconguyRosie) summed up so precisely: New math: every tweet by @realDonaldTrump subtracts 70 points off the Dow. Keep ’em coming.

Woah…a ubiquitous opening bounce, then puked into Europe’s close, then another attempt to ignite momentum, fails and stocks puked into red for the year again…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_13-00-06.jpg?itok=TEWDVMM7

3rd dead cat bounce in a week…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_12-47-48.jpg?itok=9yMFSMDT

The S&P 500 and The Dow broke below their critical 200DMA… (Nasdaq is closest to its 200DMA since Brexit plunge) –

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_11-43-53.jpg?itok=9oVG27vQ

there was a desperate last few minutes attempt to rally ’em back above the 200DMAs – Dow ended back above its 200DMA

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_13-07-42.jpg?itok=nB1ATXIC

First time the S&P has closed below the 200DMA since June 27th 2016 (Brexit)

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_11-45-03.jpg?itok=SMbagwjR

VIX topped 25, leading the US equity index vols higher today…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_12-53-28.jpg?itok=RPb7OY-X

Tech led the tumble…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_12-41-10.jpg?itok=X0GdmeU0

Lowest close for NYSE FANG+ Index since January 5th…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_12-54-40.jpg?itok=-WasIrw2

With Tesla bonds…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_12-36-19.jpg?itok=voOKK-ju

and Stocks really ugly – We suspect Elon is regretting the April Fools’ joke…

Tesla Tumbles After Elon Musk Jokes About Bankruptcy

https://www.zerohedge.com/sites/default/files/styles/inline_image_desktop/public/inline-images/bankwupt%202.jpg?itok=IlVldwxR

 

This morning shareholders of Tesla are hardly laughing, with Tesla stock tumbling as much as 5%, down to $254, the lowest level in a year.

 

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_11-00-42.jpg?itok=F2I2j8Ot

And the 10Y Yield dropping to neat two-month lows…

https://www.zerohedge.com/sites/default/files/inline-images/2018-04-02_10-44-00_0.jpg?itok=hNfTxkJj

Source: ZeroHedge

***

The very next day…

Stocks Soar After Bloomberg Report Unleashes Amazon Buying Panic

https://www.zerohedge.com/sites/default/files/styles/teaser_wide/public/2018-04/amazon%20teaser%204.3.jpg?itok=atmpAlwa

It was generally a quiet day, with no macro news and equities range-bound, seemingly spooked by the ongoing verbal war between Trump and Jeff Bezos, where first in a tweet then a White House press conference, the president warned that US taxpayers will no longer subsidize Amazon “by the billions.” And, as has been the case recently, every time Trump spoke or tweeted, Amazon turned negative.

And then, just around 2:45pm, a Bloomberg headline hit, according to which  President Trump is not formally looking at options to address his concerns with Amazon, which immediately unleashed a buying panic first in Amazon and then across the broader market:

https://www.zerohedge.com/sites/default/files/inline-images/AMZN%20no%20action.jpg?itok=Z2EoABj1