Tag Archives: Stock Market

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

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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

 

Bonds Finally Noticed What Is Going On… Are Stocks Next?

It is safe to say that one of the most popular, and important, charts of 2017, was the one showing the ongoing and projected decline across central bank assets, which from a record expansion of over $2 trillion in early 2017 is expected to turn negative by mid 2019. This is shown on both a 3- and 12-month rolling basis courtesy of these recent charts from Citi.

https://www.zerohedge.com/sites/default/files/inline-images/central%20bank%20rolling.jpg

The reason the above charts are key, is because as Citi’s Matt King, DB’s Jim Reid, BofA’s Barnaby Martin and countless other Wall Street commentators have pointed out, historically asset performance has correlated strongly with the change in central bank balance sheets, especially on the way up.

As a result, the big question in 2017 (and 2018) is whether risk assets would exhibit the same correlation on the way down as well, i.e. drop.

We can now say that for credit the answer appears to be yes, because as the following chart shows, the ongoing decline in CB assets is starting to have an adverse impact on investment grade spreads which have been pushing wider in recent days, in large part due to the sharp moves in government bonds underline the credit spread.

https://www.zerohedge.com/sites/default/files/inline-images/credit%20react%20CB.jpg

And, what is more important, is that investors appear to have noticed the repricing across credit. This is visible in two places: on one hand while inflows into broader credit have remained generally strong, there has been a surprisingly sharp and persistent outflow from US high yield funds in recent weeks. These outflows from junk bond funds have occurred against a backdrop of rising UST yields, which recently hit 2.67%, the highest since 2014, another key risk factor to credit investors.

But while similar acute outflows have yet to be observed across the rest of the credit space, and especially among investment grade bonds, JPM points out that the continued outflows from HY and some early signs of waning interest in HG bonds in the ETF space in the US has also been accompanied by sharp increases in short interest ratios in LQD (Figure 13), the largest US investment grade bond ETF…

https://www.zerohedge.com/sites/default/files/inline-images/IG%20short%20interest.jpg

… as well as HYG, the largest US high yield ETF by total assets,

https://www.zerohedge.com/sites/default/files/inline-images/junk%20short%20interest.jpg

This, together with the chart showing the correlation of spreads to CB assets, suggests that positioning among institutional investors has turned markedly more bearish recently.

Putting the above together, it is becoming increasingly apparent that a big credit-quake is imminent, and Wall Street is already positioning to take advantage of it when it hits.

So what about stocks?

Well, as Citi noted two weeks ago, one of the reasons why there has been a dramatic surge in stocks in the new years is that while the impulse – i.e., rate of change – of central bank assets has been sharply declining on its way to going negative in ~18 months, the recent boost of purchases from EM FX reserve managers, i.e. mostly China, has been a huge tailwind to stocks.

https://www.zerohedge.com/sites/default/files/inline-images/CB%20rolling%203%20month%20FX%20adjusted_0.jpg

This “intervention”, as well as the recent retail capitulation which has seen retail investors unleashed across stock markets, buying at a pace not seen since just before both the 1987 and 2008 crash, helps explain why stocks have – for now – de-correlated from central bank balance sheets. This is shown in the final chart below, also from Citi.

https://www.zerohedge.com/sites/default/files/inline-images/CB%20equities%20change.jpg

And while the blue line and the black line above have decoupled, it is only a matter of time before stocks notice the same things that are spooking bonds, and credit in general, and get reacquainted with gravity.

What happens next? Well, if the Citi correlation extrapolation is accurate, and historically it has been, it would imply that by mid-2019, equities are facing a nearly 50% drop to keep up with central bank asset shrinkage. Which is why it is safe to say that this is one time when the bulls will be praying that correlation is as far from causation as statistically possible.

… age makes absolutely no difference

Source: ZeroHedge

 

 

Morgan Stanley: “Client Cash Is At Its Lowest Level” As Institutions Dump Stocks To Retail

The “cash on the sidelines” myth is officially dead.

Recall that at the end of July, we reported that in its Q2 earnings results, Schwab announced that after years of avoiding equities, clients of the retail brokerage opened the highest number of brokerage accounts in the first half of 2017 since 2000. This is what Schwab said on its Q2 conference call:

New accounts are at levels we have not seen since the Internet boom of the late 1990s, up 34% over the first half of last year. But maybe more important for the long-term growth of the organization is not so much new accounts, but new-to-firm households, and our new-to-firm retail households were up 50% over that same period from 2016.

In total, Schwab clients opened over 350,000 new brokerage accounts during the quarter, with the year-to-date total reaching 719,000, marking the biggest first-half increase in 17 years. Total client assets rose 16% to $3.04 trillion. Perhaps more ominously to the sustainability of the market’s melt up, Schwab also adds that the net cash level among its clients has only been lower once since the depths of the financial crisis in Q1 2009:

Now, it’s clear that clients are highly engaged in the markets, we have cash being aggressively invested into the equity market, as the market has climbed. By the end of the second quarter, cash levels for our clients had fallen to about 11.5% of assets overall, now, that’s a level that we’ve only seen one time since the market began its recovery in the spring of 2009.

While some of this newfound euphoria may have been due to Schwab’s recent aggressive cost-cutting strategy, it is safe to say that the wholesale influx of new clients, coupled with the euphoria-like allocation of cash into stocks, means that between ETFs and other passive forms of investing, as well as on a discretionary basis, US retail investors are now the most excited to own stocks since the financial crisis.  In a confirmation that retail investors had thrown in the towel on prudence, according to a quarterly investment survey from E*Trade, nearly a third of millennial investors were planning to move out of cash and into new positions in the second half of 2017. By comparison, only 19% of Generation X investors (aged 35-54) were planning such a change to their portfolio, while 9% of investors above the age of 55 had plans to buy in.

Furthermore, according to a June survey from Legg Mason, nearly 80% of millennial investors plan to take on more risk this year, with 66% of them expressing an interest in equities. About 45% plan to take on “much more risk” in their portfolios.

In short, retail investors – certainly those on the low end which relies on commodity brokerages to invest – are going “all in.”

This was also confirmed by the recent UMichigan Consumer Survey, according to which surveyed households said there has – quite literally – never been a better time to buy stocks.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/10/14/mich%20stock%20prices.jpg

What about the higher net worth segment? For the answer we go to this morning’s Morgan Stanley earnings call, where this exchange was particularly notable:

Question: Hey good morning. Maybe just on the Wealth Management side, you guys had very good growth, sequential growth in deposits. There’s been some discussion in the industry about kind of a pricing pressure. Can you discuss where you saw the positive rates in Wealth Management business and how you’re able to track, I think, about $10 billion sequentially on deposit franchise?

Answer:  Sure. I think, as you recall, we’ve been talking about our deposit deployment strategy for quite sometime, and we’ve been investing excess liquidity into our loan product over the last several years. In the beginning of the year, we told you that, that trend would come to an end. We did see that this year. It happened a bit sooner than we anticipated as we saw more cash go into the markets, particularly the equity markets, as those markets rose around the world. And we’ve seen cash in our clients’ accounts at its lowest level.

In other words, when it comes to retail investors – either on the low, or high net worth side – everyone is now either all in stocks or aggressively trying to get there.

Which reminds us of an article we wrote early this year, in which JPM noted that “both institutions and hedge funds are using the rally to sell to retail.Incidentally, the latest BofA client report confirmed that while retail investors scramble into stocks, institutions continue to sell. To wit:

Equity euphoria continues to remain absent based on BofAML client flows. Last week, during which the S&P 500 climbed 0.2% to yet another new high, BofAML clients were net sellers of US equities for the fourth consecutive week. Large net sales of single stocks offset small net buys of ETFs, leading to overall net sales of $1.7bn. Net sales were led by institutional clients, who have sold US equities for the last eight weeks; hedge funds were also (small) net sellers for the sixth straight week. Private clients were net buyers, which has been the case in four of the last five weeks, but with buying almost entirely via ETFs. Clients sold stocks across all three size segments last week.”

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/10/14/bofa%20client%20flow%20oct%202017.jpg

The best way to visualize what BofA clients, and especially institutions, have been doing in 2017 is the following chart:

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/10/14/inst%20flows.jpg

Meanwhile, a familiar buyer has returned: “buybacks by corporate clients picked up as US earnings season kicked off, with Financials buybacks continuing to dominate this flow.”

And just like during the peak of the last bubble, retail is once again becoming the last bagholder; now it is only a question of how long before the rug is pulled out. For now, however, enjoy the Dow 23,000.

Source: ZeroHedge

Fed Warns Markets “Vulnerable to Elevated Valuations” [charts]

Hussman Predicts Massive Losses As Cycle Completes After Fed Warns Markets “Vulnerable to Elevated Valuations”

Buried deep in today’s FOMC Minutes was a warning to the equity markets that few noticed…

This overall assessment incorporated the staff’s judgment that, since the April assessment, vulnerabilities associated with asset valuation pressures had edged up from notable to elevated, as asset prices remained high or climbed further, risk spreads narrowed, and expected and actual volatility remained muted in a range of financial markets…

According to another view, recent rises in equity prices might be part of a broad-based adjustment of asset prices to changes in longer-term financial conditions, importantly including a lower neutral real interest rate, and, therefore, the recent equity price increases might not provide much additional impetus to aggregate spending on goods and services.

According to one view, the easing of financial conditions meant that the economic effects of the Committee’s actions in gradually removing policy accommodation had been largely offset by other factors influencing financial markets, and that a tighter monetary policy than otherwise was warranted.

Roughly translated means – higher equity prices are driving financial conditions to extreme ‘easiness’ and The Fed needs to slow stock prices to regain any effective control over monetary conditions.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/08/14/20170816_FOMC11.png

And with that ‘explicit bubble warning’, it appears the ‘other’ side of the cycle, that Hussman Funds’ John Hussman has been so vehemently explaining to investors, is about to begin…

Nothing in history leads me to expect that current extremes will end in something other than profound disappointment for investors. In my view, the S&P 500 will likely complete the current cycle at an index level that has only 3-digits. Indeed, a market decline of -63% would presently be required to take the most historically reliable valuation measures we identify to the same norms that they have revisited or breached during the completion of nearly every market cycle in history.

The notion that elevated valuations are “justified” by low interest rates requires the assumption that future cash flows and growth rates are held constant. But any investor familiar with discounted cash flow valuation should recognize that if interest rates are lower because expected growth is also lower, the prospective return on the investment falls without any need for a valuation premium.

At present, however, we observe not only the most obscene level of valuation in history aside from the single week of the March 24, 2000 market peak; not only the most extreme median valuations across individual S&P 500 component stocks in history; not only the most extreme overvalued, overbought, over bullish syndromes we define; but also interest rates that are off the zero-bound, and a key feature that has historically been the hinge between overvalued markets that continue higher and overvalued markets that collapse: widening divergences in internal market action across a broad range of stocks and security types, signaling growing risk-aversion among investors, at valuation levels that provide no cushion against severe losses.

We extract signals about the preferences of investors toward speculation or risk-aversion based on the joint and sometimes subtle behavior of numerous markets and securities, so our inferences don’t map to any short list of indicators. Still, internal dispersion is becoming apparent in measures that are increasingly obvious. For example, a growing proportion of individual stocks falling below their respective 200-day moving averages; widening divergences in leadership (as measured by the proportion of individual issues setting both new highs and new lows); widening dispersion across industry groups and sectors, for example, transportation versus industrial stocks, small-cap stocks versus large-cap stocks; and fresh divergences in the behavior of credit-sensitive junk debt versus debt securities of higher quality. All of this dispersion suggests that risk-aversion is rising, no longer subtly. Across history, this sort of shift in investor preferences, coupled with extreme overvalued, overbought, over bullish conditions, has been the hallmark of major peaks and subsequent market collapses.

The chart below shows the percentage of U.S. stocks above their respective 200-day moving averages, along with the S&P 500 Index. The deterioration and widening dispersion in market internals is no longer subtle.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/08/14/20170816_huss.png

Market internals suggest that risk-aversion is now accelerating. The most extreme variants of “overvalued, overbought, over bullish” conditions we identify are already in place.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/08/14/20170816_huss1_0.png

A market loss of [1/2.70-1 =] -63% over the completion of this cycle would be a rather run-of-the-mill outcome from these valuations. All of our key measures of expected market return/risk prospects are unfavorable here. Market conditions will change, and as they do, the prospective market return/risk profile will change as well. Examine all of your investment exposures, and ensure that they are consistent with your actual investment horizon and tolerance for risk.

Source: ZeroHedge

BofA: This Entire Rally Has Been Institutions Selling To “Animal Spirited” Retail Investors

Important considerations for those who acquire and leverage real estate with financial market assets.


Another paradoxical observation emerges when combing through the latest Bank of America data.

First, as discussed earlier today, while a net 48% of surveyed fund managers had an allocation to equities in March, the highest in two years, this flood into stocks has taken place even as the highest number of respondents since 2000 admitted stocks were overvalued.

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/03/20/bofa%20valluation.jpg

That was one part.

The other part is that while fund managers respond that they are loading up on stocks, what they are doing is very different, and as BofA’s Jill Hall reported overnight, the bank’s clients sold stocks for the fifth consecutive week led entirely by institutional clients.

According to the report, last week, during which the S&P 500 climbed 0.2% (but remained below its early-March highs), BofA clients were net sellers of US equities for the fifth consecutive week, in the amount of $891MM. ETFs continued to see muted inflows, while single stocks saw outflows. There was one smallchange: unlike the previous four weeks, when sales had been broad-based across client groups, net sales last week were entirely due to institutional clients, while private clients and hedge funds were net buyers for the first time in five and seven weeks, respectively. These two groups had been the chief buyers of equities post-election prior to the recent selling streak. In other words, while previously the great rotation was out of institutions and hedge funds to “animal spirited” rich retail investors, last week hedge funds joined the buy parade, perhaps pressured by a need to catch up to their benchmark at quarter-end, and buy any overvalued garbage they could find.

More Details:

  • Clients were net sellers across all three size segments last week. Buybacks by corporate clients slowed from the prior week’s levels, and year-to-date continue to track their lowest of any comparable period since 2013.
  • Biggest buying of Health Care stocks in over a year
  • Clients sold stocks in eight of the eleven sectors last week, led by Consumer Discretionary and Industrials (which have both seen net sales for the last five weeks). Real Estate-the worst-performing sector in March-continues to have the longest selling streak (for seven consecutive weeks).
  • And amid the Fed rate hike last week, Utilities saw their biggest sales in three months. Health Care stocks saw the largest net buying, with the biggest inflows since last January and the first positive flows in six weeks, driven by institutional clients. This sector saw the greatest outflows of any sector in 2016 and has seen the second-largest outflows (after Discretionary) year-to-date.
  • Bearish sentiment, light positioning and attractive valuations are several reasons we are positive on Health Care stocks, where we see political risks as overly discounted. Other sectors which saw inflows last week were Materials and Telecom, where flows into Materials were the largest since last February.

Other notable flows: Broad-based sales of Disc. & bond proxies

  • Hedge funds, private clients and institutional clients alike were net sellers of Consumer Discretionary stocks last week-which typically underperform during tightening cycles-along with stocks in the bond-proxy sectors of Utilities and Real Estate. No sector saw net buying by all three groups.
  • Hedge funds’ net buying last week was spread across five cyclical sectors, while private clients’ net buying was entirely in ETFs and Financials stocks last week.
  • Pension fund clients were net sellers of US stocks for the second straight week, led by sales of ETFs and Real Estate stocks. Their biggest purchases last week were of Energy stocks. For more details, see Pension fund flows.

Finally, here is the breakdown of institutional, HF and retail client flow prior to US election through present. What it clearly shows is that the whole rally has been one “great rotation” from selling institutional investors to buying “animal spirited” retail traders.

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/03/20/bofa%20clients%20sales.jpg

And when institutions sell enough, the bottom from the market is pulled, retail panics to sell as the S&P tumbled, institutions reload, and the whole cycle repeats. 

Source: ZeroHedge


110-Day Streak Is Over – S&P Drops 1% For First Time Since October

The S&P 500 is down over 1% this morning. While in the old normal that would be nothing much to note, in the new normal, this is the biggest drop since October 11th!

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/21/20170321_1106.jpg

The 110-day streak without a 1% drop is over… this was the longest streak since May 1995

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/21/20170321_1101.jpg

Below is a look at historical streaks of trading days without a 1%+ decline going back to 1928:

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/15/20170319_china1.jpg

VIX topped 12.5 for the first time since february and is breaking towards its 100DMA…

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/21/20170321_1107.jpg

And for those expecting The Fed to step in and save the day… Don’t hold your breath!

And sure enough,

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/03/21/20170321_1108.jpg

Source: ZeroHedge