Brace Yourself For Another Wild Month In Stock Markets

For the year, the Dow is down -6%, the S&P 500 is down just over -9%, and the Nasdaq has lost -14.7%. The previous record-holder is January 2009, an ugly moment for the economy, when the stock market fell -8.6%. In addition, the VIX – aka the CBOE Volatility Index – has actually dropped back to around 31 after topping 37 earlier this week, its highest point since November 2020.

Keep in mind, the index isn’t registering anywhere close to levels reached during other periods of “extreme” volatility. For example, the index, which is measured between zero and 100, hit its highest point of almost 83 during the financial crisis in 2008. Its most extreme point during the pandemic was around 66 in March 2020. So, by comparison, this week’s volatility has been rather mild.

Federal Reserve

Some insiders equate the wild swings in stock prices to investors, particularly “big money,” trying to establish a new baseline for stock valuations minus the Fed’s easy money policies that have driven a massive amount of cash into markets since the pandemic began in 2020.

At its height, the Fed was pumping as much as +$120 billion per month into the system via its asset purchase program, ballooning its balance sheet to now nearly $9 trillion.

At the same time, the Fed has held its benchmark rate at near-zero and, before that, hadn’t even attempted to raise rates since 2018, and then only briefly. The last full-cycle of rate hikes was 2015. What’s more, investors haven’t really had to factor for inflation since the early 90s and it hasn’t been this high since the 80s.

Bottom line, whatever the new “normal” ends up looking like, it will be dramatically different from the pre-pandemic investing landscape. I’ve heard several large stock traders saying it seems to be the return of Alpha instead of the race to levered Beta. I hear others on Wall Street referencing it to a bit of league recreational youth baseball team where everybody now gets an award simply for participation, but then kids run into a rude awakening when performance really starts to matter.

It feels like we are there in the stock market; every business that was coming into the market was simply being rewarded with participation points, now people are starting to keep a real scorebook and counting the strikeouts and runs scored.

Economy still roars

The good news is that the U.S. economy continues to roar. Historically, a combination of moderate inflation and moderate interest rates has led to some of the biggest boom times for U.S. Last week, the Commerce Department said Q4 Gross Domestic Product (GDP) grew at an annualized rate of +6.9%, stronger than Q3’s +2.3% and well above Wall Street expectations of around +5.7% growth.

Consumer spending climbed at a +3.3% annual pace led by a +4.7% increase in services spending. But the real stand out was private investment which rocketed +32% higher, boosted by a surge in business inventories as companies stocked up to meet higher customer demand. Rising inventories, in fact, contributed nearly +5% to Q4 GDP growth.

On the one hand, the inventory build is positive because it indicates an easing of supply chain dislocations that should in turn help with inflation pressures. On the other hand, many economists note that the big boost from retailer and wholesaler restocking is not likely to be repeated.

Companies will also likely start to unwind at least some of that inventory in the quarters ahead, which could drag overall 2022 GDP, especially if consumer spending also drops off. And investors are more closely tracking consumer behavior as inflation continues to rise.

With consumer spending accounting for about 70% of the U.S. economy, any signs that belts are tightening or moods are getting overly pessimistic will likely set off some alarm bells.

Data to watch

Turning to next week, it will be another busy one for both key economic data as well as earnings. The main economic data highlight will be the January Employment Situation on Friday. Other key data includes ISM Manufacturing, Construction Spending, and the JOLTS report on Tuesday; ADP’s private payrolls report on Wednesday; Productivity & Costs, Factory Orders, and the ISM Non-Manufacturing Index on Thursday.

Earnings wise, results are due from NXP Semiconductor and Trane on Monday; Advanced Micro Devices, Alphabet, Amgen, Chubb, Electronic Arts, Exxon, General Motors, Gilead Sciences, Match Group, PayPal, Sirius XM, Starbucks, and UPS on Tuesday; AbbVie, Aflac, Allstate, Boston Scientific, CNH, Corteva, D.R. Horton, Ferrari, Humana, Johnson Controls, Meta (Facebook), MetLife, Novartis, Novo Nordisk, Qualcomm, Siemens, Thermo Fisher, TMobile, and Waste Management on Wednesday; Activision Blizzard, Amazon, Biogen, Carlyle Group, Check Point, Cigna, Clorox, ConocoPhillips, Deckers Outdoors, Eli Lilly, Estee Lauder, Ford, Hanesbrands, Hershey, Honeywell, Ingredion, Merck, Pinterest, Quest Diagnostics, Royal Dutch Shell, Snap, SnapOn, Wynn Resorts, and Xylem on Thursday; and BristolMyersSquibb, CBOE, Phillips 66, Regeneron, and Sanofi on Friday.

Bottom line, brace for another huge week of extreme volatility.

S&P 500 Ends Down, Big Tech lifts Nasdaq to Record

Amgen Inc fell 2.1% and Merck & Co lost 1.6% after Morgan Stanley cut its rating on the stocks to “equal-weight” from “overweight.”

The Nasdaq was supported by Big Tech stocks that have fueled Wall Street’s gains in recent years. Apple rose 1.6% and Netflix added 2.7%, both hitting record highs.

“You could call it a gravitation toward Big Tech. As people feel a bit uncertain about how COVID will play out, you don’t have your reopening worries with those companies,” said Tom Martin, senior portfolio manager at Globalt Investments in Atlanta.

Much of the rest of Wall Street fell. Eight of the eleven sub-indexes traded lower, with economy-sensitive sectors like industrials down 1.8% and utilities dipping 1.4%. The real estate index lost 1.1%.

Tepid August payrolls data on Friday last week raised concerns that the economic recovery was slowing down.

On Tuesday, Morgan Stanley cut its rating on U.S. stocks to underweight, pointing to risks related to economic growth, policy and legislation, and warning it expects the next two months to be “bumpy.”

Accommodative central bank policies and reopening optimism have pushed the S&P 500 and Nasdaq to record highs over the past few weeks, but concerns are growing about rising coronavirus infections due to the Delta variant and its impact on the economic recovery.

Analysts on average expect S&P 500 companies to increase their earnings per share by 30% in the September quarter, following a 96% surge in the second quarter, according to I/B/E/S data from Refinitiv.

Unofficially, the Dow Jones Industrial Average fell 0.76% to end at 35,100 points, while the S&P 500 lost 0.34% to 4,520.03.

The Nasdaq Composite climbed 0.07% to 15,374.33.

The S&P 500 remains up about 20% year to date, and the Nasdaq is up about 19%.

Boeing Co dropped 1.8% after Ireland’s Ryanair said it had ended talks with the planemaker over a purchase of 737 MAX 10 jets worth tens of billions of dollars due to differences over price.

Match Group Inc jumped over 7% after the S&P Dow Jones Indices said on Friday the Tinder parent will join the benchmark index.

Columbia Property Trust Inc surged 15% after Pacific Investment Management Company said it would buy the company for $2.2 billion.

Volume on U.S. exchanges was 9.2 billion shares, compared with the 9.0 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 2.27-to-1 ratio; on Nasdaq, a 1.65-to-1 ratio favored decliners.

The S&P 500 posted 19 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 120 new highs and 24 new lows.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Noel Randewich; Additional reporting by Shashank Nayar in Bengaluru; Editing by Anil D’Silva and Arun Koyyur; Editing by Aurora Ellis)

Match Shares Jump on S&P 500 Addition

The S&P 500 index has met its match. Online dating site Match is getting added to the broader stock market index, and its shares are soaring 9% in response during extended-hours trading. The stock took investors on a wild ride over the summer but is just about flat year-to-date. The changes in the S&P 500 are part of the index’s quarterly shufflings based on the latest market activity.

In & Out Index

S&P Dow Jones Indices announced that Match Group will replace the outgoing Perrigo Company, the latter of which will move to the S&P MidCap 400 index. In addition to Match Group, other newcomers to the S&P 500 index include insurer Brown & Brown and IT company Ceridian HCM Holding.

The Match stock bump could have something to do with the fact that index funds that track the S&P 500 must gain exposure to the stock by design. In order for Match as well as Brown & Brown and Ceridian to keep their spots, they must maintain a minimum market cap of $13.1 billion. Match shouldn’t have any trouble as it currently boasts a market cap of $41 billion.

Going Steady

One of the companies that the trio of new S&P 500 members beat out was meme stock GameStop. The video game retailer recently joined the S&P MidCap 400 Index, and with a market cap of $15 billion could technically qualify for the S&P 500. The sticking point for GameStop, however, is its inherent volatility as a meme stock. S&P Global tends to select names that are more predictable in nature, such as insurance stock Brown & Brown.

Shares of Brown & Brown are up nearly 2% in after-hours trading on the index development. Year-to-date, the dividend-paying stock is up 24%. In the same period, GameStop’s stock is up more than 900%. Ceridian, the third stock to be added, tacked on just over 1% in after-hours trading on the index development.

Match is poised to generate revenues of $3 billion-plus this fiscal year. The company is among those to benefit from Apple’s recent decision to change its App Store fine print so that subscription-based companies can keep a larger piece of the sales pie. Match, which owns the popular dating app Tinder, is behind Tinder subscriptions tiers Tinder Plus, Tinder Gold and Tinder Platinum.

A Post-Covid Hangover – Should You Worry About Your Portfolio?

Amazon executives noted shifting consumer habits as the pandemic eases and people become more mobile. Amazon forecasted the next quarter’s sales at between $106 billion and $112 billion, compared to Wall Street expectations for right around $119 billion.

Amazon’s projections would still represent growth of +10% to +16%. Keep in mind, bears are also pointing to ongoing fears of supply chain hiccups, higher-trending inflation, and new coronavirus outbreaks. Earnings come at a busy pace again today with results from Caterpillar, Cerner, Chevron, CNH Industrial, Colgate Palmolive, Enbridge, Exxon Mobil, Johnson Control, and Procter & Gamble.

The worry on Wall Street is that this new normal rate of growth will be slower than many analysts and trading firms are forecasting coupled with higher inflation and or supply chain dislocations corporate profits could fall under some pressure or in this case be less than Wall Street is forecasting for the next few quarters. Bulls expect more consumer spending will shift from goods and pandemic-related services (delivery, video games, cloud/collaboration software) but are still betting on pent-up demand for things people missed out on during lockdowns, as well as goods and services that are currently in short supply.

Data to watch

Updated inflation data is also on tap with the ISM Manufacturing Index on Monday and the Services Index on Wednesday.

There will be plenty more earnings next week too, including Simon Properties and Zoom on Monday; Activision Blizzard, Alibaba, Amgen, Clorox, ConocoPhillips, Eli Lilly, Fidelity, Match Group, Monster Beverage, Occidental Petroleum, and Phillips 66 on Tuesday; Allstate, CVS, Etsy, General Motors, Kraft Heinz, Marathon Petroleum, MetLife, MGM Resorts, Rocket Companies, Roku, Trane, and Uber on Wednesday; Adidas, AMC, Carvana, Cigna, Cloudflare, Corteva, Duke Energy, Kellogg, Moderna, Nintendo, Novo Nordisk, Siemens, Square, Wayfair, Zillow, and Zoetis on Thursday; and Dish Network, Dominion Energy, and DraftKings on Friday.

Insider Accumulation

ES ##-## (Daily) 2021_08_01 (19_25_02)

I have mixed feelings about SP500. There are a few signs of weakness. However, it might be the result of low summer activity. Advance-Decline Line is clearly bearish. Insider Accumulation is also not that strong. Moreover, the Volatility Index is very low and potentially it could bring a pullback. In any case, SP500 futures failed to close the week above Gann resistance. And that is also a negative sign.

The Federal Reserve policy is still supportive. But keep in mind, that SP500 has rallied around 100% since the pandemic bottom without any pullback. And the retest of key support zones near 4200 and 4000 is realistic.

On the other hand, the continuation of the rally is also possible but only if price sustains above 4400. If that happens, bulls will target 4500 and 4600 in extension.