During the weeks ending the 10th and 17th of June, both the S&P 500 and the Nasdaq-100 closed around 5% down week-on-week. With respect to the S&P 500, this has happened only 7 times since World War II ended and none of those were particularly good times.
As of the week ending on the 17th, nearly every single sector’s 50-Day Moving Average Spread (as a %) was trending often in excess of 10%.
While every sector’s price was downtrending on a Y-o-Y basis, energy, utilities, consumer staples and health care sectors were particularly oversold. These sectors particularly attract investor interest in inflationary/recessionary times but investor interest has grown outsized, with little remedy apparent to ease the pressure.
After the mainstay of the U.S. economy shifted from wide-base manufacturing and ancillary services to “tech” in the nineties, the latter had enjoyed substantial investor attention over the past couple of decades or thereabouts. As a result, both commentary and coverage of the “tech” sector had leaned heavily on growth potential for investors, particularly as more and more retail investors trooped into the marketplace.
“Tech” is a significant part of the S&P 500 (with it gaining even more prominence in the Nasdaq-100). However, as a whole, over a year till the week of the 17th, the Trailing Twelve-Month PE Ratios of the S&P 500 (which calculated as a proportion of each stock’s individual PE Ratio) has reached historic lows.
Now, over the past week, reports have emerged that the number of mortgage applications in the U.S. (a key indicator of “societal” health in terms of spending) has been falling. Despite the Fed Rate hike (as covered in the previous article on oil ) being rather modest so far, this is an additional cause for concern.
However, over the past week, there was a substantial jump in both benchmarks: 6.4% in the S&P 500 and 7.5% in the Nasdaq-100. Given the higher representation of “high-conviction” tech stocks in the latter, this is natural. After all, investors have been leaning on “tech” for over a decade now. However, there’s a fair-to-strong likelihood that this broad market recovery might not be sustained. Almost the entirety of the week-on-week rise was attributable to Friday’s big rally.
The idea that this rally will be sustained has precious few buyers in the industry: Wolfe Research, for instance, noted that this was due to deeply oversold conditions being disposed off (incidentally: this is a pretty fair summary for the last few rounds of “Friday bumps” seen in tech stocks as well). Wolfe Research continues to maintain an intermediate-term bearish outlook and states that the next phase would be driven by rising recession risks and downward earnings revisions.
This week will see a host of data being released, including May updates to home sales, the Personal Consumption Expenditures Index, the Purchasing Managers’ Index, Eurozone unemployment rates and inflation statistics. Furthermore, first-quarter GDP growth rate is expected to be finalized and there’s an expectation of the 1.5% contraction will be confirmed.
The Street is cautious and for good reason: minute improvements will likely not find a lot of takers for a sustained rally.
For those looking at Wall Street analysts’ ratings for many high-conviction stocks and wondering why many of them are still on “Buy”, it bears noting that these ratings are derived from the company’s balance sheet and financials as opposed to the stock’s current valuation. Fund managers and prominent investors have voiced concerns about overvaluation in the U.S. equity market for almost 5 years now. Overvaluation divorces the stock’s performance from the company’s, with the latter taking outsized cues from the latter in the best of times and finding little purchase in the worst of times.
The Street is wise to be cautious and so should retail investors. Given how inflationary concerns have still not been addressed, it would be a good time to consolidate and consider the situation carefully. For disciplined tactical investors wishing to capitalize on the churn evident now, this would be a good time to consider short-term leveraged/leveraged inverse instruments while the dust begins to settle.
Violeta è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.
Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.
Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.
Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.
Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.
È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.
Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.