After years of an unabated bull market in tech stocks, investors may be finally beginning to take note of the shortcomings in tech shares. Bloomberg's Lu Wang reports that after the tech-focused Nasdaq index fell more than 1% on Monday, some analysts are calling out the sector's risk. Wang writes: Mike Wilson at Morgan Stanley on Monday reiterated his bearish call on tech high-flyers, urging investors to seek safety in shares with cheaper valuations as the market is likely to be headed for the biggest correction since February. While the magnitude of losses is no worse, the pain for active … [Read more...]
The Most Crowded Trade on Wall Street
This year's most crowded trade on Wall Street is Big Tech. The FAANG stocks, as measured by the NYSE's Fang+ index have climbed by 32% year to date. According to Bank of America, the trade is the most overextended since 2015. Robin Wigglesworth writes in the FT: The New York Stock Exchange’s Fang+ index, which includes a mix of US and Chinese tech companies, has climbed more than 32 per cent this year. However, some investors think the rally in “Big Tech” shares is overdone. Betting on the Faangs in the US and China’s Bats has been identified as the most crowded trade for sixth months … [Read more...]
The S&P 500’s Balance Problem
Six stocks, four of which don’t pay a dividend, account for 99% of the YTD gain in the S&P 500. The top ten holdings in the S&P 500 account for 23% of the market capitalization of the index. Netflix, a company projected to burn $3 billion in cash this year and Amazon, a company that trades at 83X estimated earnings, have a market value that is almost as large as the entire S&P 500 Utilities and Telecom sectors. What’s more valuable to you, Prime delivery and bingeing Netflix, or electricity and phone service? The S&P 500 has become a top heavy index dominated by stocks … [Read more...]
Have Profit Margins Peaked?
Could this be the end of the road for the long upward trend in rising profit margins? Rising wages are cutting into profits at major corporations, and it could be the end of an era in which it has seemed as though profit margins would rise forever. Danielle Chemtob reports at The Wall Street Journal: Rising wages are beginning to eat into the profits of some U.S. companies. Firms from dollar stores to hotel operators to fast-food chains have warned in recent months that higher labor costs have been a drag on their profits—a potential headwind for the nine-year stock-market rally as it … [Read more...]
Amazon Makes Move in Pharmacy
Amazon announced yesterday that it is buying Pillpack. Pillpack is an innovative little company that pre-packages medicines for consumers who take multiple drugs regularly. The big pharmacy stocks predictably sold-off on the news that big-bad Amazon is entering their business, but there is much less to be concerned about than meets the eye. Selling prescription drugs is much different than selling Amazon Kindles. A quick review of the Pillpack website shows that. It takes 10-15 minutes to even signup. There is insurance that needs to be dealt with, regulation, pharmacy benefits managers, … [Read more...]
The Dismantling of GE
Sad! Once America’s most venerable industrial company, GE has announced plans to shrink itself to a fraction of its former self. GE is going to spin off its health-care business and exit the oil services business that former CEO Jeff Immelt entered near the top of the market. The new GE will be focused on power, aviation, and renewable energy. A leaner and more focused company will result. The breakup of GE could have been done years ago from a position of strength, but former leadership dithered, and doubled down on a conglomerate strategy that is now unraveling. GE is now splitting up … [Read more...]
Are Markets About to be Disciplined?
In an interview with the Financial Times, Agustin Carstens of the BIS, said that investors have become a disciplining force that will leave markets, specifically those with debt-laden government with little room to grow. Claire Jones writes: The “disciplining force” of financial markets will leave debt-laden governments with limited room to boost growth as central banks ditch their crisis-era stimulus, the head of the Bank for International Settlements has warned. Agustín Carstens, general manager of the central bankers’ bank, told the Financial Times: “Some markets are overstretched and … [Read more...]
Are the Pieces Finally in Place for a Bear Market?
The FT reports here that bearish investors may have finally capitulated. Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. John Templeton said that. A lack of bears is a necessary precondition for a bull market, but it should not be viewed as a catalyst for a bear. Media commentary, which invariably reflects the opinions of influential market participants, appears to be becoming steadily less bearish the further we move away from the last crisis. My colleagues on FT Alphaville have pointed out that the number of articles mentioning the term … [Read more...]
GE Kicked Out of the Dow
It is a sad day for General Electric. The Dow Jones Industrial Average index committee has decided to give GE the boot. GE was an original member of the Dow and had been part of the 30-stock index continuously since 1907. It was the Dow’s oldest constituent. Once America’s most venerable industrial company, GE stumbled badly at the hands of former CEO Jeff Immelt. Mr. Immelt should have been shown the door years ago, but the board kept him around. GE is now a shadow of its former self and the current CEO was pushed into cutting the dividend (another poorly handled decision) and selling-off … [Read more...]
Short-Sellers Bet Against Twitter
After posting its first two profitable quarters, Twitter's share price has been soaring, but Ben Eisen reports for the Wall Street Journal that short sellers have the social media network in their sights. He writes: Now, as optimism about the company prompts a slew of analysts to lift their price targets, some short-sellers are betting on a reversal. They have amassed positions worth more than $2 billion this month through Thursday, according to s3 Partners, a financial analytics firm. “Shorts have been selling into this rally, backing up their original bets and looking to double up on … [Read more...]
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