Don’t sell stocks too early — and don’t even think of shorting Tesla
- DreamWorks/Universal Picture
Investors hanging around to watch the paint dry in August are entertaining themselves, it seems, by using geopolitics as an excuse to dip in and out of the stock pool. The Dow industrials DJIA are teetering into negative territory for the year. But no matter, we’ll see how it all shakes out when everyone is back from the beach.
Still, the headlines bother some more than others. Byron Wien, Blackstone Advisory’s vice chairman, says the possibility of flare-ups out of places like Gaza, Iraq and Ukraine keep him from sleeping well. That’s because a shock from any of those places could send oil prices higher and shake up equities. Away from that, he told CNBC that the S&P 500 SPX will hit 2,300 by the year end, though overly positive sentiment means this correction probably has some legs left in it. His tip: Biotechs and the potential for new drugs to battle major diseases.
Outside of Russian Trojan Horses, there’s this Fed-exit timing thing that’s making others uneasy. In his Bedtime with BTIG note, Dan Greenhaus pointed to this Reuters article that came out yesterday. Here’s a quote: “Interviews with current and former Fed officials indicate that Yellen and core decision-makers at the U.S. central bank are determined not to raise interest rates too early and risk hurting the fragile U.S. economy.”
Greenhaus says in client meetings and in strategy notes he’s been persistently “pushing back on the ‘hawkish Fed’ meme that continues to permeate markets.” The gist of the Reuters piece – that the Fed is worried about putting the skids on the recovery more than it is about inflation – should surprise no one, he says.
“It’s that simple, and we’d think that after four-plus years of investors overestimating the Fed’s inclination to turn hawkish, people might finally get it. Apparently, that is still not the case,” says Greenhaus.
Over at Credit Suisse, Andrew Garthwaite is telling clients to stay overweight equities until rates rise. So wait for command before you unleash hell on your broker, or something like that.
“Don’t sell too early, as in the past, equities have peaked no earlier than four months prior to the first rate hike, and by the time the first rate hike has occurred, equities have only corrected by an average of 3% from their peak,” says Garthwaite. He notes the stock pullback ranges from 6% to 11%, but markets tend to recover an average 4% gain in the six months after the rate increase.
His team thinks the rate rise is coming in the third quarter of 2015, though odds are on earlier tightening for him, due to economic signals.
Just how badly do individual investors underperform the market? This one chart says it all.
Our call of the day looks at the strategy of shorting stocks and the dangers of going after market darling Tesla.
Key market gauges: Some early gains for Wall Street look likely, though lots of eyes are on that Russian-aid-convoy-to-Ukraine situation. Futures for the Dow YMU4 and S&P ESU4 are both up. Asia XX:ADOW saw some big gains from Hong Kong. China ignored a plunge in home sales and Japan blew off a nearly 7% drop in GDP. European stocks XX:SXXP are also on the rise.
The economy: Retail sales were flat in July, making them weaker than analysts had expected. A wholesale funding conference gets not one, but two Fed speakers: New York Fed Pres. William Dudley and Boston Fed Pres. Eric Rosengren, due to speak at 9:05 a.m. and 9:25 a.m. Eastern, respectively. Plus: Hero or a goat? The Fed is on the line, says Mohamed El-Erian.
Earnings: “Candy Crush Saga” maker King Digital KING shares are off 22% in premarket over a weak outlook. “King’s biggest driver still remains Candy Crush. Its commentary of weak trends in the game is a big shift from the consensus thinking that it was declining slower than King forecast,” said Evan Wilson at Pacific Crest, who says he still can’t recommend the stock (rates sector perform). Read about the slew of downgrades.
Disappointing guidance also hit shares of Fossil Group FOSL and JDS Uniphase JDSU late, so watch for more weakness in premarket.
Reporting on the early side, Deere DE said profit fell 15% on a weaker farm economy. Shares are down a bit in premarket. SeaWorld SEAS said it expects a sales decline, and shares are drowning.
Macy’s M also disappointed with its sales and outlook, and those shares are down as well. Cisco CSCO reports after the close.
The buzz: FleetCor Technologies FLT is buying payments-processing company Comdata from Ceridian LLC for $3.45 billion.
LinkedIn LNKD has a big plan, to break into the business-to-business marketplace and make it a $1 billion business by 2017, says Business Insider.
Call of the day: Included in that Bespoke analysis from yesterday was research showing a July rally for many of the stocks sellers have bet heavily against (h/t MoneyBeat). The five-year bull market overall has been pretty ugly for short-sellers. And even though the market struggled in July, short sellers still didn’t get a break.
Now Tesla isn’t on that shortie list (nor is it on the best/worst performers lists either), but before you get any crazy ideas,The Street.com is ready to warn you off. While everyone seems to love Tesla, some are carping about valuations — but writer MJ Zeng says this isn’t a problem, because the general market likes technology. Here are three reasons Zeng says not to short:
- Trend is your friend. Technical analysis for Tesla shows the trend is up.
- Timing is critical. Don’t short a stock based on what you think is a reasonable price. Amazon is an example of how stocks can rise even when fundamentals are unstable.
- Don’t short a company that has “problems” of which other corporates can only dream. Zeng points to this tidbit in Tesla’s second-quarter shareholder letter: “…average global delivery wait times increased because our production growth was unable to keep pace with increased demand”.
You can find the whole note here.
The chart of the day: There’s an app for that, too. The Economist has done a fascinating look into how new technology is shaking up the oldest profession in the world, bringing independence to women who used to have to rely on pimps. Before you get all prickly, there’s a point to this. The report also shows a drop in the average hourly rate of a prostitute in recent years. As our own Irwin Kellner said yesterday, inflation is going up, even if the official data doesn’t show that, and that hurts everyone.
- International prostitute website; Economist Intelligence Unit
Random reads: Probes into Bernard Madoff’s Ponzi scheme lead to a $500 million hedge-fund scam run by a former MIT professor and his son.
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Everyone’s saying such lovely things about Robin Williams. Oh wait.
Tears flow like wine. Lauren Bacall becomes the latest great to leave us. Here’s perhaps her best film moment.
