Thomas Franck


Stocks fell on Wednesday as traders grew worried about the increasing number of newly confirmed coronavirus cases, which raised concern about the economic reopening and recovery.

The Dow Jones Industrial Average dropped 404 points, or 1.5%. The S&P 500 traded 1.4% lower while the Nasdaq Composite slid 1.1%. The tech-heavy Nasdaq was headed for its first daily decline in nine sessions.

“Markets pause with all eyes on the virus and the reopening heading into the summer months,” said Gregory Faranello, head of U.S. rates trading at AmeriVet Securities, in a note. The health side is back front and center as both monetary and fiscal liquidity has been factored in short-term. We have entered a new phase of this crisis.”

A CNBC analysis of Johns Hopkins University data found the U.S. 7-day average of coronavirus cases surged more than 30% from a week ago after the total number of cases grew by more than 31,000 on Monday. California is one of the states that has seen a dramatic spike in cases, adding more than 6,000 on Monday alone. In Texas, the Covid-19 hospitalization rate has hit a record for 12 straight days.

“We’re going to eclipse the totals in April, so we’ll eclipse 37,000 diagnosed infections a day,” former Food and Drug Administration Commissioner Dr. Scott Gottlieb told CNBC’s “Squawk Box.” “But in April we were only diagnosing 1 in 10 to 1 in 20 infections, so those 37,000 infections represented probably half a million infections at the peak.”

Overseas, Germany reported a cluster of newly confirmed cases at a slaughter house in Lower Saxony. That’s the latest in a series of coronavirus outbreaks in Germany.

Shares of companies primed to benefit from the economy reopening faltered. United Airlines fell 3.3%. Delta, American and Southwest all slid over 1.5%. Carnival, Norwegian Cruise Line and Royal Caribbean were lower by 5%, 4.5% and 3.7%, respectively. Retailer Gap also fell more than 2%.

Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said Tuesday the U.S. is seeing a “disturbing” surge in new Covid-19 cases.

“This raises many questions but the most important is the policy direction,” said Tom Lee, head of research at Fundstrat Global Advisors, regarding the spike in cases. “We still see positive risk/reward in stocks and as we have said for some time, equities are in the hands of buyers.” Lee added that if the S&P 500 can stay above its 76% retracement level, the index should reach new highs this summer.

Wall Street was coming off a banner day, with the Nasdaq Composite posting its 21st closing record for 2020 on Tuesday. The Nasdaq’s gain on Tuesday also represented its eighth straight day of gains, its longest winning streak since December, when it advanced for 11 straight sessions.

Author: Fred Imbert and Thomas Franck

Source: CNBC: Stocks extend losses, with the Dow falling more than 400 points


  • David Kostin, Goldman’s top U.S. equity strategist, wrote that the historic fall in interest rates is unlikely to prevent a “collapse” in second- and third-quarter profits.
  • “After 11 years, 13% annualized earnings growth and 16% annualized trough-to-peak appreciation, we believe the S&P 500 bull market will soon end,” Goldman warned.
  • Goldman’s forecast for weaker 2020 earnings hinges on lower oil prices and interest rates that “diminish Energy and Financial company profits.”

Goldman Sachs’ top U.S. stock strategist said Wednesday that the longest U.S. bull market in history will meet its demise soon, with equities seeing significant losses beyond what they’ve already suffered over the last three weeks.

David Kostin, chief U.S. equity strategist at Goldman, wrote that the historic fall in interest rates is unlikely to prevent a “collapse” in second- and third-quarter profits, and he advised clients to tilt investments toward companies with stable earnings and strong balance sheets.

“After 11 years, 13% annualized earnings growth and 16% annualized trough-to-peak appreciation, we believe the S&P 500 bull market will soon end,” Kostin warned in a note. “Investors have cut their equity positions in recent weeks, but not to levels reached at the trough of other major corrections this cycle.”

The stock strategist slashed his midyear S&P 500 forecast to 2,450, meaning the investment bank now sees the market falling another 15% beyond Tuesday’s close to levels not seen since December 2018. That is, the bank now sees the market down another 15% on top of its 14% loss incurred over the last month.

Kostin did say, however, that he expects a rebound in the back half of 2020 to boost the S&P 500 to 3,200 by year’s end, 11% higher from current levels.

The S&P 500 and Dow Jones Industrial Average are down more than 14% from all-time closing highs hit in February. Investors have punished stocks around the world in recent weeks as the coronavirus spreads around the globe and threatens workplace productivity.

Some worry that the impact to output could be so severe that it could tip some economies into a recession, an acute source of volatility for the market, which hasn’t posted a daily move of less than 1% since February. The Dow posted its worst day since the 2008 financial crisis on Monday with a decline of more than 2,000 points only to halve those losses on Tuesday with a near-5% rally.

“Both the real economy and the financial economy are exhibiting acute signs of stress,” Kostin wrote.

“Supply chains have been disrupted and final demand has declined for many industries. Travel is contracting sharply as both individuals and businesses restrict movement,” he continued. “Airlines, hotels, cruises, and casinos report plunging demand, lower occupancy, and cancellations. Employees are being furloughed.”

But losses in the stock market that have accompanied broader concerns over the economy have varied widely by industry.

Kostin, for example, said his forecast for weaker 2020 earnings hinges on lower oil prices and interest rates that “diminish Energy and Financial company profits.” Those two sectors have underperformed the broader stock market even amid its March sell-off as a plummet in crude prices whack energy stocks and a swoon in long-term interest rates threaten bank margins.

“Domestic business activity outside of those sectors is also likely to be weaker than we originally forecast, as underscored by reduced or withdrawn guidance from a number of firms in recent weeks,” Kostin added.

The Energy Select Sector SPDR exchange-traded fund, which tracks the performance of the largest energy producers in the U.S., is down 23.9% this week after OPEC failed to persuade Russia to cut oil production. Those failed talks, in turn, sparked a 25% decline in the price of West Texas Intermediate crude and a steep sell-off in energy.

Occidental Petroleum and Marathon Oil are the two worst-performing stocks in the S&P 500 over the last month, each down in excess of 60%.

A plunge in long-term interest rates to record lows sent ETFs that track big U.S. banks spiraling, with the SPDR S&P Bank fund down 30% this year. J.P. Morgan and Citi are down 27% and 30%, respectively, in that period.

Author: Thomas Franck

Source: CNBC: Goldman says the bull market will end soon with stocks dropping another 15%

Investors betting against Elon Musk’s electric-auto maker Tesla collectively lost an estimated $1 billion-plus on Thursday as the company’s stock headed for its best day on Wall Street since 2013.

Tesla popped 16.5% Thursday to around $300 per share, meaning short sellers betting against the stock are on track for $1.4 billion in mark-to-market losses on the day — wiping out almost 70% of short sellers’ year-to-date profits, estimates S3 Analytics.

“Short sellers are, as Elon Musk stated earlier in the year, ‘feeling the burn,’” wrote Ihor Dusaniwsky, managing director at S3. “Prior to today’s price move TSLA short sellers were up +$2.00 billion in mark-to-market profits, this is down from its year-to-date P/L high of +$5.16 billion of mark-to-market profits before TSLA began its sustained rally in June.”

To be sure, those who bet against Tesla at the start of 2019 are still in the black to date with the equity down more than 11% this year after Thursday’s price moves. Tesla stock closed at $254.68 on Wednesday, which at the time represented a 23.4% slide for 2019.

Tesla is the most heavily shorted stock in the U.S., as well as the most heavily shorted automaker in the world. Short interest, or the number of shares borrowed in hopes of buying them back at a profit after the stock drops, totals $9.03 billion for Tesla, according to S3.

Some high-profile short sellers such as Greenlight founder David Einhorn and Jim Chanos have clashed with Tesla and Musk in the last few years.

Musk himself has over the years taken to Twitter to do battle against such doubters, fighting back against investors betting against his stock and other detractors, often with controversial comments.

In May 2018, Musk tweeted that shorts were about to feel the “burn of the century.” Over a year late, but maybe it’s just starting to play out for the Tesla chief.

Author: Thomas Franck

Source: CNBC: Short sellers betting against Tesla lose more than $1 billion in single day as stock surges

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