This article will review some of the biggest news stories from the week.
It is the viewpoint of Adamfayed.com that the best time to invest was always yesterday, and people shouldn’t trade on the news, and instead buy and hold.
Nevertheless, some of our staff have came up with some of the most interesting news stories from the last week.
The biggest story – the performance of markets
During the first week of June, the majority of equities were soaring relentlessly by 5-10% or more every day. June started with a spectacular rebound and fostered beliefs for a V-Shape Recovery.
During the second week of June, there was a major sell-off as investors started taking profits. COVID-concerns are now rising again and are pushing hedge funds and institutions away from the market. Who’s buying?
Retail investors, even though they are outnumbered by institutional players like banks and he’d funds, seem to have become increasingly important as they are accessing through online brokers and buying popular stocks that could end up in bankruptcy, such as Hertz.
During the Second week of June, Tesla reached the $1,000 threshold for the first time in history when Elon Musk announced he sold over 11,000 new cars in China, all produced in his Shanghai-based factory. The newly designed Model Y is now targeting the middle-income class and could double the annualized vehicle sales.
The Nasdaq hits a record
The tech heavy Nasdaq hit another record this week, despite the Dow Jones and S&P500 still being below their all-time peaks.
Nobody can know if this trend will continue in the coming months and years..
European Central Bank (ECB) Takes Action
ECB’s Lagarde encouraged bond buys in order to mitigate the damages caused by the pandemic, but her emphasis wasn’t perceived the same way by the German Constitutional Court and the Finnish Parliament’s constitutional committee that claimed such action is unjustified asserting a different bond-purchase scheme.
Individual stock movements
Hertz surged 70% during the second Friday of June as investors are betting on a miraculous debt repayment escape and the New York Stock Exchange not to delist the company. Hertz is now looking to sell $1 billion of its shares to capitalize from the recent uptrend boom.
As far as the digital-technical world and gaming are concerned, Sony is planning to release the PlayStation 5 before the end of the year and revealed some of its accessories. As it won’t have a disc reader, it should be much lighter and less expensive.
Adobe spiked serving millions and millions of people with its digital products but has suffered the lockdown of factories as they were demanding much more technical and expensive software. Has Adobe risen just because everyone was buying tech equities? The Q2 result, in fact, saw a big decrease on several segments such as Digital Experience, Digital Media and Publishing, hindering them.
NVIDIA, the Graphics card producer is now growing steadily as the gaming industry is expanding at a rapid pace. NVIDIA’s CEO stated that the shift towards remote work is fueling this industry, especially the gaming chips industry.
As far as Airlines are concerned, Boeing will re-certificate its 737 MAX in a few weeks and it’s now, hopefully, solving all its related deficiencies in order to make it marketable.
Quarterly on the third Friday of the month, 4 different trading products expire, these are options on stocks and futures, index futures and single stock futures. This leads to increased volume in the overall markets.
Why does it lead to increased volume? Because if your long options are almost expiring, especially in the cases of big hedge funds, and you have to roll them and buy new ones, this leads to increased volume resulting in one of the busiest days of the week.
Why does Quadruple Witching matter?
- Because of this increased volume and liquidity, many global indexes rebalance their portfolios;
- The higher liquidity means that any rebalancing will lead to less price disruption;
- Many other funds mimic these indexes, so they have to rebalance themselves;
- Many stocks can be ‘’gamed’’ the week of expiration as price movement can be predicted before the end of the week.
This rebalance happens during the third Friday of each quarter and not at the end of the month because this is when there’s less volume and they feel the extra liquidity leads to less disruptions. Stocks with the biggest buybacks burning the quarter have to be sold to maintain a certain weight.
Therefore, on the 19th of this month, June 2020, we’ve almost reached the edge in many indexes such as the SPX500 and now, with a quadruple witching in front of us, there could be a major surprise.
Will the SPX500 fall down under the 2000 line? Some state that it is just artificially inflated by the Fed and that the economy has been way harder than what they’re trying to cover.
Others are positive thinking that this should surge much higher lifting most stocks up again in a long week or fortnight of a bullish uptrend.
The market is now contracting and basically forming a wedge. Volatility is contracting in a very narrow range and typically when that happens, it will explode up or down. The momentum has flattened out completely. There’s no trend, just a congestion area awaiting for a direction.
The triggering point is around 3086 and the market closed at 3071.00. The contraction is setting up some sort of move, and there’s no way to figure out which direction at the moment, except for the sideways action.
Quadruple Witching days generally tend to be positive days, but when they are not, generally they bring down the market by a lot.
Third Week of June, Beijing experiences 80 new cases of Covid-19
Over the weekend, Beijing registered 80 new cases after 7 weeks without any single case. The authorities reported that it could have started again in a fruit market and therefore they have sealed several residential districts in lockdown to prevent the worse.
New Chinese reports show the scars caused by the virus to the Chinese economy. In May, retail sales are still 3% down in comparison to the previous year and the industrial production of the country decreased by 4.5% against the 5% analysts expected to see.
A similar thing happened in Tokyo where 47 new cases have been registered the same day and could be traceable to nightclubs and bars that have recently reopened.
At the same time, Europe is reopening quickly as the virus is fading away. Recently, France has lifted its state of emergency and travel restrictions saying that school will reopen the next week on Tuesday.
In the UK, all retail outlets were allowed to reopen although the government is still pushing people to keep social distancing and security measures in place.
Italy will soon reopen its borders also to countries outside of the EU. Recently students have been called to pass the national exam after rough debates on whether to make them digital or physical.
As we have seen so far, however, coronavirus doesn’t automatically influence stock markets.
The best performing stock markets have been in areas most affected by it, such as the US.
Taiwan and South Korean’s stock market haven’t performed as well.
Dollar Quickly Recovering Against Secondary Currencies but U.S. Futures Plunge
The dollar index, which measures the greenback against a group of currencies used in developed markets rose as high as 97.40 before retracing to 97.15. The dollar is recovering against the currencies that could suffer the most from the news coming from China, including almost all emerging countries. The 10-year treasury bond, on the meantime, dipped as low as 0.65%.
The U.S. stocks opened sharply lower on Monday continuing the last week’s sell-off as a second wave could potentially restart the pandemic erasing all the efforts to keep the economy stable. Similarly to China, some US-states have recently experienced some spikes in their COVID hospitalization reports and so did some of the major cities in the US.
The Dow Jones Industrial Average, S&P500 and NASDAQ Composite suffered their heaviest losses since March 20 with over 5.5, 4.7 and 2.3% respectively. The FED indicated that it plans to do whatever it takes to keep the economy afloat but we will see a sharp decrease in the GDP by 6.5% an unemployment rate of 9% granted that the pandemic doesn’t affect us anymore.
The giant oil company BP announced that it was taking up $17,5 billion in charges and stated that the pandemic has impacted the global economy so much that the demand in oil and energy, in general, will keep being lower for a sustained period. US crude prices fell by 2% to $35,50 a barrel while Brent futures dropped by 1% to $38,20.
The Walmart-Shopify Partnership for E-Commerce Business Expansion
The world’s biggest retailer, Walmart, is now Partnering with the Canadian e-commerce company, Shopify, in order to grasp a bigger slice of the COVID surge demand in online shopping. This cooperation could somehow hurt Amazon.com Inc through fierce competition.
This cooperation is Walmart’s last attempt to expand the scale of profitability of its e-commerce business that lags behind Shopify’s in growth. Shopify already offers more than 75.000.000 products and third-party sales are generally more profitable as, similarly to eBay, sellers pay a fee and shoulder the responsibility on covering the delivery costs.
Shopify enables merchants to open virtual shops on their platform for as little as US$29 a month giving them all the tools necessary to run it properly and manage their payments, inventory and shipping.
On the other side, we have Walmart.com, visited by over 120.000.000 monthly customers. This deal could possibly open new doors for trade among medium-sized businesses. There are many Shopify sellers that are already cooperating on Walmart.com selling retail products.
This partnership could build-up a vast network of millions of merchants. Shopify also is now cooperating with the Social Media Giant, Facebook, importing Shopify catalogues to its new Shops service.
Carnival reports US$4,4 billion in losses in the Preliminary Q2 Report
Things are overall looking grim for CCL and CCL PLC after their last Q2 Report release. Analysts seem far from being optimistic about this company on the short-term forecasts. Both revenue and EPS (Earnings per share) forecasts went well below expectations.
The analysts covering the Carnival Corporation provided an estimate of US$7.5 billion in 2020 which represent a sharp decline of 65% in sales, forecasting almost US$9.00 losses per share in 2020. There has been quite a change-up of views after the recent consensus updates expecting losses per shares to increase.
The consensus price target fell to US$17.11 on average among the analysts, showing that the EPS is the leading indicator for CCL’s valuation, where the most bullish estimate sits at US$30.00 per share and the most bearish at US$5.00 per share.
This suggests that there are some strong divergent opinions on how the business will perform in the near future, which kind of explains the huge volatility it is facing every day during trading hours.
By contrast, data suggests that other companies in the same industry could probably see an average of 17% annual growth in the foreseeable future while CCL potentially could underperform most of them.
The Carnival Analyst Geoggrey d’Halluin maintained a Neutral rating for CCL raising it from 1000 pence ($12,60) to ($19,00), 1500 pence, stating that CCL should be able to fund all the losses until the next year starts. It is quite probable that cruise lines won’t resume before the 15th of September.
Carnival owns $7.5 billion available in liquidity, burning 650 Million dollars a month and the company put on sale 6 of their 106 cruise ships available. Each month they are losing between 1-2 ships in value.
The good news is that Carnival is reporting cumulative advance booking for the fiscal year 2021 within historical ranges. Although everything is going down, Carnival’s booking volumes have just kept increasing during the last two months.
Surprise in the HEXO Q3 results and the Cannabis industry?
Cannabis companies never made any important surge lately. But HEXO in its Q3 results has reserved us with some surprises. The Marijuana sales during this pandemic have increased considerably announcing some promising numbers for the fiscal year 2020.
HEXO reported a 70% year-over-year growth in net revenue, of which 30% in the second quarter. Revenue from recreational cannabis rose by 30% and 104% last year. The third-quarter results come at a time when most cannabis companies reported good quarterly numbers. The expectations were high and a surge was expected.
HEXO’s CEO stated that the biggest sales were represented by hash and oil extract CBD oil. Moreover, the company managed to sell 9.400 kg as stated in the Q3 report, which is a 42% increase from the previous 6.600 kg sales written in the Q2 report.
A new important thing to consider is the rollout of stores in Ontario and Quebec. This will determine HEXO’s ability to recover from the losses. Even if most pot companies are now prospering with positive revenues, before interest, taxes, depreciation and amortization, they are still reporting EBITDA losses.
The advent of COVID infections stopped the rollout of retail stores in Ontario and Quebec. 60-75 stores were expected to open in this period and the Ontario government is considering halting these licenses until September 2021.
Luckily, HEXO is not selling just simple products but also derivatives such as beverages, edibles, concentrates, vapes, chocolates and other smaller products which contain traces of cannabis. HEXO is planning to launch CBD-infused beverages soon in Canada and it has recently entered the US market along with its American partner, Molson Coors Beverage.
It is vital to note that the cannabis industry is among the riskiest industries you could invest in. It could have extremely positive outcomes as it is an evolving sector with tremendous potential, but this will depend solely on the regulations adopted by governments.
Hedge Funds and Institutions Are NOT Investing, But Retail Investors Are
The Commodity Futures Trading Commission (CFTC) releases every week a report on the futures and the position of the investors. There are commodity futures, as the CFTC implies, stock futures, index futures.
The report we’re talking about it’s called COT (Commitments of Traders) which analyses the position of investors through time on a specific index, stock, commodity, etc. If your intention is to invest in commodities, this report is fundamental to your analysis. Other investors use futures on indexes and or/stocks, sometimes to benefit from leveraged ETFs.
By knowing the positions of the investors in the market, we can figure out who has literally moved the market during this period, who is probably going to move it in the near term and who could, eventually, move it on the long term.
The CTO categorizes Index and stock traders in four groups:
- The Dealers, representing the big banks which create products and sell them to the public and in order to compensate the risk on their products, sell futures, ‘’sell-side’’.
- The Asset Managers, representing funds which generally invest for third parties and they’re generally always long.
- The Leveraged, representing the Hedge funds, are funds with more aggressive policies than the above mentioned having a totally different approach.
- The Non-Reportable, representing the small retail investors and traders with small capitals, who often make the wrong decision.
Last weeks’ CTO report shows that hedge funds bought millions of shares during the free-fall and now they turned excessively bearish. This means that in March they have bought and sold already and now they’re just waiting.
Fund Managers have sold everything during the free-fall as they thoroughly follow the market otherwise they would lose all their clients, and they have recently bought, but not too much.
Those who bought the most during this period are generally the small retail investors and traders who seem to have driven every equity by a large percentage, this is the first time in history where small retail traders and investors manage to drive stocks and indexes.
Taking into consideration that all these hedge funds and fund managers are so dubious and not buying at all, could mean that someone is wrong. Are small retail investors and traders challenging hedge funds and fund managers?
This may have happened because trading has been advertised almost everywhere and retail investors are probably trying to follow Warren Buffet’s words, ‘’buy the dip and let them mature for ages’’.
However, it has to be remembered that hedge funds regularly perform badly.
Therefore, we shouldn’t read anything into this news story.
There is increased protectionism and speculation about new global taxes.
The US has complained about global taxes on tech giants but that has fallen on deaf ears.
There is speculation that the UK will need to introduce a new second homes tax to pay for the coronavirus, after the economy recovers.