Investment Commentary –August 10th, 2016
Market Indices as of Market Close August 10th, 2016
Dow 18,495 (6.14% YTD)
S&P 2,175 (6.44% YTD)
NASDAQ 5,204 (3.94% YTD)
Global DOW 2,436 (2,033 week low/high 2,439)
10-year Treasury 1.50 (1.32 52 week low /2.38 high)
Gold 1,352 ($1,053 52 week low /high $1,384)
Oil $41.49 ($32.85 52 week low /high $54.91)
Brexit Bounce a Disaster for Bears as S&P 500 Slips From Record
A year that’s brought little but pain for bearish traders is getting worse.
Not only is the rising market punishing shorts, it’s lifting their favorite targets at a rate that is by some measures three times as great as everything else. As a result, the 50 most-shorted stocks — that is, the ones bears had bet would fall — have instead rallied as much as 16 percent since the end of June, on track for the biggest quarterly gain in more than five years, data compiled by Bloomberg and Goldman Sachs Group Inc. show.
Unlucky stock selection is making a tough year worse for the group, who’ve watched the value of U.S. stocks swell by more than $2 trillion since late June. The S&P 500 Index pushed its gains to nearly 7 percent this year before the measure slipped 0.3 percent Wednesday to 2,175.49 at 4 p.m. in New York, about 0.3 percent from an all-time high.
From concerns Brexit would derail the global economy to a fifth straight quarter of earnings contraction and stretched equity valuations, investors had more than enough reasons to bet against U.S. stocks this summer. Those wagers have gone south as traders snapped up companies, whose prospects are tied to an expanding economy, signaling expectations for continued central-bank support amid steady growth.
“This environment of low interest rates and excess capital availability provides significant danger to shorts in this market,” said Walter Todd, who oversees about $1.1 billion as chief investment officer for Greenwood Capital Associates LLC in South Carolina. “This particular market has continued to grind higher, and it’s never a good idea to short when things are relatively dull.”
Oil slide pulls Wall Street back from record levels
Wall Street retreated from record levels on Wednesday after a drop in oil prices pressured energy stocks, while shares of Walt Disney surged on its results and an acquisition.
A rally since late June has pushed the S&P 500 up more than 6 percent in 2016 as low interest rates encourage investors to buy U.S. equities, although high valuations are of concern to many.
The energy index .SPNY fell 1.41 percent, hurt by a drop in oil prices after the U.S. government reported a surprise crude stockpile build.
Exxon Mobil (XOM.N) lost 1.75 percent and was the biggest drag on the S&P 500 and the Dow.
“Once we saw inventories this morning, that certainly moved energy far lower and dragged almost everything else down,” said Tim Dreiling, regional investment director for The Private Client Reserve of U.S. Bank.
“To grind higher, we do need to see earnings improvement, and that’s only going to come from economic improvement,” Dreiling said.
The Dow Jones industrial average .DJI declined 0.2 percent to finish at 18,495.66 points and the S&P 500 .SPX lost 0.29 percent, to 2,175.49 points. The S&P 500 has hit four record intraday highs this month.
The Nasdaq Composite .IXIC dropped 0.4 percent to 5,204.59.
Six of the 10 major S&P 500 indexes were lower. Trading volume was low in the absence of market-moving information in a traditionally low-volume season.
JP Morgan thought of the week
The Bank of England’s monetary policy meeting last week delivered a multi-faceted
package of supportive measures. The interest rate cut of 0.25% was accompanied by a
plan to purchase up to GBP 10 billion in corporate bonds. This is meant to bring the
cost of financing for UK corporates down by increasing demand in secondary markets,
especially with such a large buyer—the BoE—in this market of GBP 360 billion. It is also
important to consider the higher duration of the UK corporate credit market, which
makes it likely the UK corporate yield curve will flatten. This is good news for
companies looking for long-term financing but not such good news for banks lending
at these suppressed long-term rates.
THIS DAY IN FINANCIAL HISTORY: Netscape Has A Good Day
On this day in 1995 Netscape goes public with company stocks and in one day sells 5 million stocks originally slated at $28 a share to $72 dollars a share. By the end of the day the company was worth $1.96 billion. Netscape was the first company to successfully make the Internet accessible to the public with its easy to use Internet navigator. It didn’t take long before other companies joined in on the Internet market and made their own Internet navigating programs accessible to the public.
The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.