Don't trust negative BETA stocks to move opposite the US stock market all the time. Today, all of the US common stocks with a negative BETA that we found a little while ago are moving with the US stock market.
The synthetic ETFs with synthetic negative BETA are moving against the markets, but that is because they are designed to do that.
All of the negative BETA stocks are lower with the markets today.
Here is our morning, premarket video on global stock and bond markets.
US Advanced Computing Infrastructure, Inc.
We notice a few things in the market this morning before the open. We did our review about 45 minutes before market open (and into the open) on Monday.
The US equity indices were all down. Small caps were down more.
US equity indices are all up lately...up about 10%, so this can be considered chop. In fact, if the S&P 500 can rise to 4200, they break the lower high trend of this bear market. We are facing consolidation and resistance to continued increases.
US Treasury Bonds are very high these days, close to the peak. This means that long-term interest rates (US Notes and US Bonds) are falling. Not that they are as low as they were a year ago, but they are lower than they were a few months ago.
Overall, we see signals into the future macroeconomic situation:
Copper prices are up ~20% from where we remember it recently. This is a China reopening trade, and a manufacturing bet. Copper goes up with manufacturing goes up. It is also likely an inflation trade.
Silver is up too. Like Copper, Silver has industrial and commercial uses, in addition to being a precious metal. This is likely also a China reopening and no-recession trade.
The US Dollar is down 10% from where we recently tracked it. That is a big move, and means either the rest of the world is raising interest rates, or the US will not go through with its inflation fight. The world does now want US Dollars, nor the safety of US investments. Ten percent decline in the US Dollar is a big drop, although admittedly it had risen significantly before this recent fall (Euro/Dollar was under 1.0). This feels like a consolidation in the US Dollar.
Gasoline prices are rising, but more importantly end-user gasoline prices are rising. We see this in Illinois, and worry that taxes may have increased, along with refining, transportation, and marketing costs.
The international market was mixed last night. Hong Kong and South Korea were down, along with Europe. However, mainland China was up, and the rest of the markets were mixed. The Hang Seng may just be a small consolidation of recent gains. Slight consolidations. Same with the Kospi (South Korea).
Equities are up over the past six months. Markets are up.
In the US, the S&P 500 is up significantly and today could be a slight consolidation. The market bottomed at ~3600, and is now up to ~4100. This is just chop in our opinion.
$CRBP or Corbus Pharmaceuticals is not looking up this morning. It is our worst nightmare, and is down 85% from where we started buying it. We are still very bullish on Corbus, and are afraid we might be the only bulls in this stock. We are long Corbus Pharmaceuticals common stock.
We also reviewed these groups of stocks all in pre-market:
Quantum Computing and quantum security pure-plays
Steel and mining
The market looked very negative and not RISK ON this morning. It looked down with little regard to risk.
Good luck in the markets today.
We were getting ready to make a video and do whatever it is we do at market open when BOOM all of a sudden the market falls dramatically. Twitter lights up. Stocks in the S&P 500 are halting. These are not small capitalization, MEME stocks, but big stocks worth billions or hundreds of billions of dollars in equity market capitalization. Stocks like $MCD, $VZ and $MMM. Some had earnings today.
We thought that this was terrible. It was a sign of market instability. Flash crashes are not helpful, and if they last for more than a few minutes they could trigger significant market instability through margin selling and forced unwinding of positions due to Value At Risk and Compliance issues. We tweeted something positive and life affirming, think it was the Kool Aid character and a statement that we were bullish, because we did not want to contribute to a possible crash. Not our style at all.
By the end of the day the market recovered. Not just that, but the stocks that sold off the hardest also recovered. In fact, they hardly moved at all and were flat on the day, along with the $ES_F which was down only -0.07%.
Here was a tweet of an analysis we did after the market closed:
In the end, this was a non-event.
In my opinion, based on my active imagination and some anonymous twitter vibes, I think what happened is that some options activity which required hedging by selling the underlying S&P 500 stocks happened. It happened in error, and there was the equivalent of a fat finger mistake (or just adding a few zeros to the position sizes). In other words, some trading desk made a mistake and sold liquid, highly capitalized stocks to hedge an options or derivative bet. The NYSE and NASDAQ exchanges figured it out quickly, halted trading, and the janitorial crew came in and put Humpty Dumpty back together again.
There was "nothing to see here" by the end of the day and the halted stocks (the few that we read about on Twitter) were equally up and down and the median move was ~ equal to the overall change in the index.
Nothing to see here, but wow will I be careful about putting in out of the money buy orders unless I really want those shares.
Good luck tomorrow.
By Jeffrey Cohen
US Advanced Computing Infrastructure, Inc.
It looks like the entire market is falling today. The US equities market was trading higher in the morning, but economic news was negative. Now, we see long-duration bonds trading higher, and stocks falling. Gold is flat to down slightly.
What is interesting is that up until the poor economic news from the US Commerce Department the highest-BETA stocks were trading higher. Now, everything is falling.
Good luck in the markets. Looks like we are easily maintaining our ~4,000 S&P 500 Index range for another few days.
By Jeffrey Cohen, Investment Advisor Representative, Illinois
US Advanced Computing Infrastructure, Inc.
We saw a few articles today about Q4 earnings. People say they will be disappointing. People are worried that companies are not earning as much now as they did a year or two ago.
Well, we have a different explanation for this concern over earnings.
This has the potential to be a very long BLOGpost or a formal article, so we will just 'cut to the chase' and share our methodology and high level findings very casually. We look for time to write this up more formally.
1. We read the law. Here is the text of H.R. 5376, and we attach the file below. I think it says that any firm that has $100M in profit on average over the past three years has to pay it (tax is on net income, as stated in financial statements, not tax accounting). It also applies to any company that earns $1B in any one year. It excludes sole proprietorships, REITS and other specialty investment firms.
2. We run our model and as part of it we produce a spreadsheet. It lists all firms that pass our data validation, and includes the firm's net income for the past year. One key data validation is that they are actively traded and another was they had to have an equity market capitalization of $100M or more. They also have to be US listed stocks, and we manually remove non-US companies that are US listed. Could be errors in the data provided by our premium market data services provider, and could be firms with positive net income > $100M that are worth less than $100M or don't trade very often. It also completely excludes privately held firms.
3. We removed stocks that have errors in their net income. We produce a value of '999,999,999' and then delete it. In total, there are 1,100 high liquid stocks that have $100M or more in net income this past year.
4. We sum (like in excel) the total net income of all the stocks with net income this year of $100M or more. The total earnings is $2.05 Trillion US Dollars. The total is huge, and I am surprised by the net income of US corporations. If the Q3 2022 US GDP is $25,723 Billion US Dollars (Source: FRED GDP here), then 8% of our US GDP is earned by large US corporations, and that amount will now be taxed with an AMT of 15%.
5. The Alternative Minimum Tax casts a wide net. Large, publicly traded US Corporations that are headquartered in the US report a net income of $2.05T, or 8% of our $25.7T economy. That seems reasonable. Their minimum tax will be $300B in 2023. We don't know how much they pay currently, so the incremental amount is up to $300B
6. Now, what did we miss with the $300B / year estimate?
a. Any companies that are owned by multinational corporations. The law could be read to reach in and take 15% of all of their global income, but let's assume it is 15% of the total net income (absent transfer pricing shenanigans), of the US business.
b. Any privately held business with $100M of net income or more.
A simple estimate of foreign owned firms (e.g., Honda, Samsung) and privately held businesses (Maritz, Cargill, and private equity owned firms) could add ~30% (+/- 50%) to this total. So, we add 30% to the $300B estimate and we hit $390B in potential corporate tax raised.
Finally, we know how much money the US Federal Government collects in Current Tax Receipts on Corporate Income. That amount is $340.6B per year. Source: FRED Taxes on corporate income, series B075RC1Q027SBEA found here.
So, we know that current taxes are $340.6B and AMT taxes will be $390B.
How to calculate the 'extra' tax revenue raised by the AMT?
This is where it gets complicated. What do we know vs. what have we heard as rumors?
So, by way of an intuitive guess, I would say that firms will take a harder look at their net income reported by their business, and this could overall reduce net income reported by US corporation, although that amount of reduction may not be significant.
Finally, we SWAG that the revenue raised by this Corporate AMT will be $200B / year in 2023, and is highly dependent on the top 50 most profitable corporations. If they take tax avoidance action, then the funds raised may be significantly lower.
We published this article on Medium.
Jeffrey Cohen, President and Investment Advisor Representative