Deleted

Deleted.  Stocks continued their slide in yesterday’s session as investors took profits.  Investors shifted into reverse gear on Tesla after the S&P shunned the automaker.

N O T E W O R T H Y

The summer wind.  “All summer long we sang a song and then we strolled the golden sand.”  I just couldn’t help myself, and yes, you can blame me if you find yourself humming the song all day.  You can also thank me for selecting that song and not one of the many others written about summer flings (trust me). Summer officially ends in 13 days with the start of autumn, but traders began shedding their summer obsessions before hitting the beaches last weekend.  Why? This is no ordinary summer-end as Presidential elections are just 55 days away.  This is no ordinary summer-end as stocks experienced banner growth with records being earned all over the place.  Summer officially began on June 20th this year and investors’ love affair with the FANGMAN stocks was intense through last week’s mid-week selloff.  The FANG stocks are now referred to as the FANGMAN stocks, which includes Facebook (FB), Apple (AAPL), NVIDIA (NVDA), Google/Alphabet (GOOG), Microsoft (MSFT), Amazon.com (AMZN), and Netflix (NFLX).  That group of stocks returned a whopping +39.56% throughout that period.  Looking at the stocks in the group, I am sure that it is clear why investors like to own them.  They are all good stocks with plenty of growth potential both in and out of a recession.  For reference, the S&P500 returned +15.60% during that same period.  Also not bad for an index that returns just under +10% on average… annually.  Of course, you know that a big factor in the rise of the index was the FANGMAN stocks, which make up some 25% of the index’s weight.  One summer fling that was not in that list was Tesla (TSLA).  That was more a torrid relationship than a fling, I would say.  Tesla was up +123.48% this summer alone.  The stock was already experiencing growth when Tesla announced a profitable second quarter. Because the announcement marked several consecutive quarters of earnings, many believed that the firm was destined to join the S&P500, which put the stock’s growth into high gear.  When Tesla announced that it would do a stock split later in the summer, the stock shifted into yet a higher growth gear.  Many investors believed that the lower share price would make the stock more “affordable” for retail investors, which drove share prices up further.  It is common belief that there are mechanical rules which dictate membership on the large-cap S&P500 Index.  Yes, there are some basic requirements such as market cap and earnings quality, but the final decision is up to a committee, and that committee decided last Friday not to include Tesla in the index.  They gave no reason, but many analysts believe that it had to do with the nature of the company’s earnings in which it includes the sale of certain government issued regulatory credits.  Tesla has been including those revenues for some time but it is not clear how long those will be available… and in fairness, TSLA should be selling cars. Another potential reason not to include the company might be its volatility, which I am sure I don’t have to tell you, is far greater than even the FANGMAN group.  Its pre-correction market cap would have put it in the top ten weightings of the index, which would have given the stock significant influence on the volatility of the overall index. Friday’s announcement didn’t help the case for Tesla and its shares sold off by -21.06% in yesterday’s session making that the undisputed end of its summer. It’s not all doom and gloom for longer term investors, as the stock is still up +294% year to date.  It has been a difficult couple of days for stocks and the selling appears to be concentrated in technology, more specifically the stocks that have experienced the greatest gains, which points to investors taking profits versus a panic-induced bubble burst.  The tech-heavy Nasdaq ended yesterday’s session down by just over -10% from its recent highs, which is technically a correction. As with most relationships, absence makes the heart grow fonder and a bit of a cool off for tech can be a healthy step on the road back to a longer, more stable relationship.  Oh, and it is still summer, technically.

THE MARKETS

Stocks continued to slide yesterday with technology shares leading the selloff, though all sectors were down in the session. The S&P500 sold off by -2.78%, the Dow Jones Industrial Average slipped by -2.25%, the Russell 2000 Index traded down by -2.00%, and the Nasdaq dropped by -4.11%.  Bonds advanced and 10-year treasury yields fell by -4 basis points to 0.67%.  Crude oil fell by -7.57% and is now back below $40 for the first time since earlier in the summer as traders perceive demand growth to be slowing.  The drop in crude led to declines in the energy sector, which gave up -3.71%.

NXT UP

- JOLTS Job Openings (July) is expected to come in at 6.0 million, up from the prior months 5.889 million openings.

- The Treasury will sell $35 billion 10-year notes.

- This morning HD Supply and American Eagle beat estimates while Zscaler, GameStop, and RH will announce after the close.

daily chartbook 2020-09-09