🐂 Market Talk #3 🐂
(A Bitesize Recap for the Week to Come)
April 25th, 2021, Edition 3
Welcome to Market Talk, where we round up some of the interesting activity that took place in the public markets over the past week in a bitesize format.
Market Talk is released every Sunday and aims to give you the 411 for the week ahead.
📈 Market Action 📉
Here are your quick updates from the past week for various asset classes.
The S&P 500
Sectoral ETFs for the US
🌎 Global Indices 🌎
Europe & UK
Africa & Middle-East
% Debt Markets %
10Y Government Notes
Global Yield Matrix
Global Yield Curve Matrix
🛢️ Commodities 🛢️
💷 Major Currencies 💷
FX rates are correct as of the time of publishing.
🔇 US Market Sentiment 🔇
Fear & Greed Index
The CCN Greed and Fear Index measures market sentiment based on seven factors; momentum, price strength, price breadth, put/call ratios, junk bond demand, volatility, and safe-haven demand.
The current reading stands at 61, a few notches above the reading of 59 reported on Friday of the previous week. Greed remains ever-present in the market.
The S&P 500 trades above the 125-day moving average by 10.1% (11.5% prior week), and the 50-day moving average by 5.9% (5.9% prior week).
The NASDAQ 100 trades above the 125-day moving average by 8.5% (10.0% prior week), and the 50-day moving average by 4.7% (5.7% prior week).
The CBOE VIX ticked up a few notches over the week, climbing from 16.25 on Friday 16th, to 17.33 on Friday passed. The 50-Day and 125-Day moving averages now reach 20.66 (down from 21.02 last week) and 23.15 (down from 23.58 last week).
Typically we can consider a range between 12 to 20 to be “normal”, with ranges below and above considered low and high. This is contextual, however.
Junk Bond Demand:
The ICE BofA US High Yield Index tracks the performance of US dollar-denominated below investment grade rated corporate debt publicly issued in the US domestic market.
The most recent reading from the 23rd of April shows that junk-grade US debt is yielding 4.26%, up 10 bps from last week.
Put and Call Options
As of Friday the 23rd, the volume in put options has lagged volume in call options by 45% (reading 0.55).
This marks a 0.10 incline from the 0.45 reading on Friday 16th, indicating investors have engaged in efforts to hedge their portfolios somewhat in comparison to the previous week’s spread.
The below chart depicts the ratio of the S&P 500 to the Total Return Bond Index. Periods, where the ratio is below 1.0, indicates that bond returns are superior to the S&P 500.
As of April 23rd, the ratio reads 1.209, fairly flat from the 1.211 in the previous week.
Finance Twitter Sentiment
The Captain Solutions Fear & Greed indicator analyses sentiment across all the analysts they track, on Twitter, using proprietary AI algorithms. Reports on the past 200 days are aggregated by day.
The current level of Fear & Greed reads 17%, up 2% from last week, and below the 20-day moving average of 33.15% and below the 100-day moving average of 40.9%. Indicating that fear is marginally subsiding, but still present.
The Week Ahead
Here are a few titbits to watch out for in the coming week.
Major Earnings for the Coming Week
Some of the major earnings for the upcoming week, compiled by EarningsWhispers.
The following two weeks is set to be the pinnacle of the earnings season for some, with each of the big US tech firms reporting. Notably, Microsoft, Apple, Twitter, Facebook, Spotify, Starbucks, Shopify, Pinterest, as well as some classic blue chips all reporting this coming week.
I am set to be very busy over these next two weeks with 14 of my positions reporting.
Big Gains Measure, Shatters 100 Year of History
An interesting tidbit that I found when reading through Sentiment Trader’s newsletter, where the level of S&P 500 vs the number of net 1% gain/losses in the past year reached historic levels.
“The past year has seen 32 more big gains versus losses, more than the net +27 days in 1929, +26 days in 1934, and +25 days in 1998.
When we zoom in on the time periods that saw nearly as many big gains vs. losses as the past year, we see how stocks struggled to hold the momentum. And when we drill down into each of the major sectors, there are 5 in particular that currently have a record or near-record net number of big positive days.
All of them preceded at least multi-month exhaustion points.”
“The past few weeks have only added to a historic run from the months before that. At various points during the past year, we've looked at streaks of large gains in the S&P or different sectors, and it's only gotten more remarkable. Even with a breather over the past couple of sessions, the S&P has never before seen a year with more +1% daily gains versus -1% losses.”
Biden Proposes New Capital Gains Tax As High as 43.4% for the Wealthy
US President Joe Biden is said to plan to almost double the capital gains tax rate to 39.6% on high incomes (people earning $1 million).
The 3.8% tax on investment income that funds Obamacare would stay. Hence, investors would see a rise in the capital gains tax to as high as 43.4%.
This appeared to spook the market on Thursday, 22nd when the news broke but does not impact the majority of the US population. Appears to be hyperbole from the market.
Moreover, this is just a proposal. The tax hike is part of the Biden administration’s push to raise taxes on Americans who earn more than $400,000 a year and does not impact the typical retail investor.
Biden’s corporate tax proposals would take the corporate tax rate plus state and local taxes to a little over 32%, which would be the highest within the OECD.
US Weekly Jobless Claims Continue Decline
Fewer Americans filed new initial claims for unemployment benefits last week, suggesting an easing of layoffs and strengthening expectations for another month of job growth in April as a re-opening economy benefits from pent-up demand.
Initial claims for state unemployment benefits totalled 547,000 (seasonally adjusted) for the week ended April 17 compared to 586,000 in the prior week.
US Unemployment to Dwindle Faster Than Once Thought?
Nordea reports that “US economy and job openings are now pointing at a possibility of super-low unemployment as soon as 3-6 months from now.”
“This may prove to be one of the swiftest comebacks from a major economic crisis in many, many decades, maybe as a pandemic is not a financial crisis per se.”
The Fed’s Meeting Next Week
The Federal Reserve are (obviously) expected to leave monetary policy unchanged in next’s meeting, with rates to stay in the 0% to 0.25% range, and the mandate of QE to remain in place until “substantial further progress” has been made on the recovery efforts. The consensus still remains that rates won’t be hiked until closer to 2022 year-end or 2023.
Interestingly, the Bank of Canada announced another tapering of their QE last week and suggested they were prepared to hike rates with the next 18 months. This puts some pressure on the US, given that the Canadian economy typically lags behind the US economy for the most part leading some to question why the Fed is suggesting 2023 as the timeframe for a rate hike.
ING labelled this the ‘Canadian Curveball’.
UK Retail Spending Heavily Weighted Towards Online
The below chart depicts the percentage shift in retail sales volumes from January 2020 and highlights the strength in online spending over the period. Retail spending is now at a level that outstrips pre-covid spending, despite stores being closed for a significant amount of that time.
With the full extent of UK stores set to open back up next week across Scotland and England, it will be interesting the see how online volumes fair. In the long run, the digital consumption trend is only set to benefit from this last year, regardless of whether it pulls back somewhat as consumers begin to go outside once more.
SPACs Take a Breather in April
Back in the first edition of Market Talk, we highlighted the incessant demand for SPACs over 2020 and the first few months of 2021.
It would appear that new SPAC issues have dried up somewhat during the second quarter with just 6 new issues so far in Q2, versus 55 at this point in Q1.
Japan and India Face Uphill Covid Battle Due to Resurgance in Cases
Reports from Japan indicate a new state of emergency from the government after covid cases experience the fourth wave, marking Japan’s third state of emergency.
The measures will go into effect from Sunday 25th, and last until May 11th. During this time bars and restaurants will be asked to close, and large-scale events, such as football and baseball matches, will be held behind closed doors.
Department stores and shopping malls will also be asked to close, excluding shops selling essential items that will stay open, as well as theme parks, theatres and museums. Bus and train services will be reduced during public holidays and weekends. This is likely an effort to, obviously, save human life, but to stomp down on cases prior to the Olympics that are due to be held in Japan on the 23rd of July.
Source: (Nikkei Asia)
Elsewhere, India has witnessed a devastating resurgance in covid cases, as highlighted in last week’s edition of Market Talk. Delhi, India’s Capital, announced lockdowns at the beginning of last week, with weekend curfews put into place.
“On Friday, India recorded 332,730 coronavirus cases, the highest one-day tally anywhere in the world for the second day in a row. Daily deaths from Covid-19 rose by a record 2,263 in the previous 24 hours.”
This has led to some side effects in the INR due to the apparent risk of an economic setback. Asia has been a consistent driver of growth across the global landscape since early 2020 after the initial disruption, thus the resurgance in virus cases across the region is concerning.
Isreal on the other hand continue to show that vaccines work. Over the weekend, they reported two consecutive days of zero covid deaths reported.
Recreate a Bloomberg Terminal, For Free
This is not news, but Elizabeth J. Howell Hanano put together a great article (link) for acquiring a range of services and tools that can best emulate a Bloomberg Terminal, for those who do not wish to fork out $25,000 for the thing.
📰 Brain Food 📰
Here is a list of a few interesting pieces from the past week, to feed your mind.
”How Big Tech got so big: Hundreds of acquisitions”
Source: (The Washington Post)
A fascinating, insightful, and visual, look back at the acquisitions that made America’s Big Tech sector so big. If you like Amazon, Facebook, Google, or Apple, then you must read this piece.
“For decades, the Federal Trade Commission and the Justice Department have been charged with vetting mergers and acqusitions and challenging them in court if they threaten market health. But now, as the tech giants grow more powerful, critics who accused these companies of using monopoly power to weaken competitors have also called for more scrutiny, saying the acquisitions are not rooted in innovation but total market control — part of a tactic known as “copy, acquire, kill” — to eliminate competition”
2) “Netflix shares slide on angst over subscriber growth”
Somewhat dramatised, but Netflix’s subscriber net adds for the recent quarter shocked some investors, with shares falling 10% on the day of the announcement. 2021 appears to be a tough comp year for the world’s leading streaming service, after the influx of new subscribers during the lockdown in 2020.
The stock initially stood at $550 prior to the earnings release and ended the week at $505.55 per share.
”A crucial question for investors has been whether Netflix can maintain its lead over the competition, which includes streaming services from Apple and AT&T as well as Disney, and keep up momentum as consumers seek entertainment outside their homes again. Reed Hastings, Netflix chief executive, told shareholders it did not believe competition was a “material factor” in the disappointing first-quarter subscriber numbers.”
3) “Joe Rogan Search Traffic Has Dropped 40% Since His Spotify Exclusive Began”
Sticking with the theme of streaming for one moment now. After signing a $100 million exclusive deal with Spotify in 2020, the hugely popular Joe Rogan Experience talk show appears to be suffering from waning interest. Is this a Joe Rogan issue, or a Spotify issue?
“That suggests that Rogan’s episodes aren’t drawing as much attention now that they’re contained within the Spotify platform. But this isn’t a paywall problem: Spotify isn’t limiting The Joe Rogan Experience to Premium subscribers, suggesting other reasons for the lowered impact. One major difference could be YouTube, which is highly viral, more open, and easier to use than Spotify — not to mention tightly integrated into Google Search itself.”
4) “The Fed’s Narrowing Definition Of Inflation”
A quick and snappy refresher pertaining to some of the wild hikes in commodity prices we are seeing, and the Fed’s posture towards those price movements. You thought Dogecoin and Bitcoin were making millionaires? You should see what lumber is doing.
“The ascent in lumber prices is the most spectacular of many commodities that reflect the pandemic recovery. Recently a general contractor I know lamented that the wood for his typical newbuild construction had doubled over a few months.
High lumber prices are not only caused by booming suburban real estate markets — new household formations are up too. Although the monthly figures reflect a sharp jump last summer followed by a drop, smoothing out the fluctuations reveals a clear increase in the underlying trend.”
5) “The Two Most Underappreciated Forces Driving Markets Today”
Ben Carlson discusses the most underappreciated forces that are driving the markets, with a focus on demographics and fund flows.
“To understand the importance of fund flows on the stock and bond markets, consider the fact that targetdate retirement funds collectively manage roughly $3 trillion. These are funds that rebalance periodically back to predetermined asset allocation weights. And as you get closer to your retirement, they automatically shift assets from stocks to bonds.
These funds didn’t exist in the past. People were more or less flying blind when it came to retirement planning with their money. This same thing is happening to baby boomer portfolios that are self-managed or managed by financial advisors as well.”
6) “Could the IPO boom Smash Risk Appetite?”
An interesting dive into the dynamics between the supply of equity shares on the market, the IPO demand rush, and lock-up expiries.
“We have earlier written about the “shortage of equity shares” as a potential driver of returns, but perhaps it’s time to mull a pending lack of shortage? After the current IPO tsunami, what will happen when insiders get to sell?”
7) “Pythia Capital Sits with Investment Talk”
Source: (Investment Talk)
Last week’s guest interview features, current fund manager and CFA chartholder, Pythia Capital who remains anonymous for obvious reasons.
I wanted to share this again, as I personally took a lot away from it, and I think anyone who reads it will too.
“Once you’ve invested, you are running iterative tests. You refine your view. Your hypothesis was that if you dropped the ball it would bounce. You test it, and indeed it works. Then you refine it: if I drop it from this height, it will bounce this high. You can keep repeating that.
Investing is like that too. Your initial thesis might be that the stock goes up because it’s in an expansion phase of a cycle. Once it gets to the top, you sell it. But imagine if that stock didn’t go down because you were wrong about the cycle. Well, back to the drawing board that means!”
🍬 Ear Candy 🍬
There is a huge range of Podcasts to listen to, and the choice can feel quite saturated at times. Here, I will share one podcast I listened to during the week, that I feel is worth your time.
Preston Pysh - From Value to Bitcoin
The Business Brew
Preston Pysh was a rebound value investor (and still is) who came from the school of Berkshire. Interestingly, in 2015 he purchases bitcoin, and in the following years began to discuss it more openly on the platforms that he had helped build, geared towards value investing.
I will save the introductions, as they are discussed in the podcast, but Pysh has some superb insight into the sequence of events that led to this value investor being so bullish on bitcoin. Even if you are not interested in bitcoin, this is a fascinating discussion.
Host: Bill Brewster
Guest: Preston Pysh
Thank you for reading Market Talk and have a great week,
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Lead Analyst at Occasio Capital Ltd