• Market Crumbs

Risk-On Investments Showing Cracks As S&P 500 Prints 666

The S&P 500 ominously closed yesterday at 2,966.60. Judging by the the market's reaction to yesterday's news, it could be an indication of what's to come as we head into a seasonally weak period of the year. The day began with stocks higher on hopes of a trade deal, for the 100th time, but ended the day lower after U.S. President Trump slammed China during his UN speech and concerns about Trump's pending impeachment inquiry.

The S&P 500 had its worst day in more than a month, with the VIX index jumping nearly 15% and likely leading to margin calls for some Target managers. The cracks in risk-on trades are starting to show. Bitcoin crated about 15% from its high of the day to its low of the day, falling below $8,000 for the first time since June.

Popular momentum stocks such as Shopify and Roku are -28% and -41%, respectively, from their highs set within the last month. FANG stocks are also slipping, with Facebook and Amazon -5% and -6%, respectively, over the last three days. Netflix is now -13% for the month and is trading at its lowest level since December. Recent "hot" IPOs such as Lyft, Slack, Chewy and SmileDirectClub each hit all-time lows yesterday and are down between 26%, in SmileDirectClub's case, and 53%, in Lyft's case. Valuations of some of the largest startups are cracking as well, with the valuations of WeWork and Juul tanking.

Despite the S&P 500 breaking above 3,000 numerous times this month, bringing it within 1% of all-time highs, there continues to be more sellers than buyers above the 3,000 mark. Some of the wealthiest people in the world are already stockpiling cash in anticipation of a recession. With rate cuts, hints of QE, record buybacks and constant rallying on hopes of a trade deal, the market is still struggling to follow-through to new all-time highs. It's now been more than 10 years since the the S&P 500 infamously bottomed at 666, so it wouldn't be the first time market sentiment shifted with the S&P 500 flashing the devilish number.

Leftover Crumbs

  • They're still unaffordable for most people, though. U.S. home prices appreciated in July at the slowest rate since 2012, according to the Case-Shiller index. The five-hottest housing markets, according to annual price appreciation, are Phoenix, Las Vegas, Charlotte, Tampa and Minneapolis. Seattle is the only city in the 20-city price index that has fallen year-over-year. Buying a house is still too expensive for the average earner in nearly three-quarters of the country. Home prices are now 15% higher than the previous peak set in 2006.

  • Another day, another negative headline for WeWork. As expected, Adam Neumann has agreed to step down as CEO and become non-executive chairman. The move follows the botched IPO, where its valuation has fallen from $47 billion to as low as $10 billion, amid questions about his leadership and erratic behavior. Neumann will see his influence in the company he co-founded diminished, with his voting shares falling from 10:1 to 3:1. However, that's not all - the company has also discussed laying off one-third of its employees, scaling back expansion plans or shuttering side businesses in an attempt to cut costs as it burns cash to grow.

  • He's going to have to explain this one. A lawsuit alleges Tesla CEO Elon Musk knew SolarCity was in dire financial condition before acquiring the company but did not disclose it. According to court filings, SolarCity auditor Ernst & Young determined the company lacked “sufficient cash to meet its obligations” as a stand-alone company. The issue is Musk didn't disclose this as Tesla was paying $2.6 billion for a company where he had numerous conflicts of interest. Just a few of the examples are Musk was chairman and the largest individual shareholder of SolarCity, the company was founded by his two cousins, and his brother was on the boards of both Tesla and SolarCity at the time of the acquisition. Tesla shares are -7% on the week and are only -47% from the $420 funding secured price.

  • This isn't a good look. Boeing is paying $50MM to the families of the 346 people killed in two separate 737 MAX airplane crashes over the last year. Families filing claims are not required to waive or release the right to litigate as a condition of participation, so they could potentially walk away with more. The payment comes out to $144,500 per victim. Last year, Boeing authorized $20 billion to be spent on share repurchases. We now live in a world where killing 346 people will cost a corporation 0.25% of what they are willing to spend on buying their own stock.

  • Sheiße. It's been just over four years since the U.S. Environmental Protection Agency sent a letter to Volkswagen claiming illegal emissions control software was used on VW and Audi diesel vehicles to cheat U.S. emissions tests. Yesterday, the current CEO and current chairman, as well as the former CEO, were charged by German prosecutors for market manipulation. Prosecutors allege they improperly influenced the company's share price by deliberately failing to tell the markets about the costs that would be incurred. The suit alleges the three executives knew of the scandal between May and June of 2015, well before the EPA went public with the news on September 15, 2008. Overall, the "Dieselgate" scandal has cost the auto giant more than €30 billion in fines, or about $33 billion, with around 11 million cars worldwide having been equipped with the illegal software.