Bubble trouble. Stocks got hammered in yesterday’s session as traders took a gut check on the nation’s recovery. News of growing COVID cases around the US soured investor sentiment causing a violent sell-off in stocks which were high flyers… just a few days ago.
N O T E W O R T H Y
Wax off. OK, do I have to remind you? The stock market is a two-way highway, it doesn’t only go up. I am confident that my readers are well aware of this fact as we have been riding together for some time… up and down. However, if you were one of those freshly locked down folks who decided to “check out” the market for the first time by opening a brokerage account at a no-frills brokerage firm, you might have thought otherwise. I have written about the increasing evidence that much of the market’s recent rally was spurred on by small, speculative, retail traders. One data point is the increased number of new accounts at venture-backed brokerage firm Robinhood, which has become the poster boy for uninformed traders. It is no-frills, cheap, and online only making it a likely first stop for many young investors. Public data shows that new accounts have surged by +30% since the end of last year and Google search interest in the firm has jumped to record levels. According to research by Goldman Sachs, the number of held positions at Robinhood nearly tripled since the market sold off earlier this year. On Monday as the S&P500 crescendoed to a post-corona crisis high all you need to do is look at the most popular stocks at Robinhood to get an understanding of what was taking place. Here they are. Hertz (HTZ): car rental company that filed for bankruptcy last month, Nikola (NKLA): electric truck manufacturer (unrelated to Tesla) with no revenue, Top Ships (TOPS): oil tanker penny stock, Oasis Petroleum (OAS): oil and gas exploration company and penny stock, American Airlines (AAL): need I say anything, Invesco Mortgage Capital (IVR): small cap REIT but at least profitable, Direxion S&P Oil and Gas (GUSH): the ticker symbol for this one says it all - this ETF is 2x leveraged bullish on oil and gas exploration, Valaris (VAL): unprofitable oil driller penny stock exploring bankruptcy, Delta Airlines (DAL): struggling with the whole sector and expecting layoffs to minimize cash burn, and finally Carnival (CCL): you knew this one would be on the list. So why would I waste so much ink detailing this list of hot stocks at a no-frills brokerage firm? It helps to understand just how outrageous the speculative euphoria had gotten. But to be fair, there are some very encouraging signs that the economy is turning around and many high quality companies are staying healthy and poised to take advantage of the growth that will come on the other side of the crisis, which is good news for long-term and informed investors. For short-term, uninformed traders looking to get a quick cash haul, it’s going to be a rough money-losing road ahead. The thing with a two-way highway is making sure you are not caught standing still with cars speeding by, or worse yet traveling in the wrong direction. Stay focused and stick to your core investment strategy. Statistics are on your side.
THE MARKETS
Stocks suffered a painful setback yesterday as they suffered the largest loss since March. Fears of a second wave combined with speculative trading accentuated the selloff. The S&P500 dropped by -5.89%, the Dow Jones Industrial Average sold off by -6.90%, the Russell 2000 lost -7.58%, and the Nasdaq Composite Index fell by -5.27%. Bonds climbed and 10-year treasury yields fell by -65 basis points to 0.66%. Crude oil was caught in the risk-off trade giving up -8.23%.
NXT UP
- University of Michigan Sentiment (June) is expected to have risen to 75 from 72.3.
- The Baker Hughes Rig Count (June 12) may have dropped to 276 rigs from the 284 of the prior week.
- Next week we will get Retail Sales, housing numbers, Industrial Production, regional Fed reports, and the Leading Index. Check back on Monday for calendars and details.