May 9, 2022 Insights
The market had a very down day after weeks of down days. The S&P 500, Nasdaq Composite 100, and Russell 2000 were down 3.2%, 4.3% and 4.2% respectively.
Oil, Natural Gas, Copper, Gold, Silver, UST Bond yields (2,5,10 & 30 year), and Bitcoin / USD were also lower.
The US Dollar, the VIX and a few commodities were higher (Ethanol, Palladium, live cattle and some of the grains.
Market breadth was heavily weighted to stocks declining. 1,085 advancing to 7214 declining (not all US-Listed Common Stocks), 55 new highs vs. 3136 new lows, 13% of stocks above the 50 day SMA, 17% of stocks above the 200 day SMA, and the S&P 500 had only a few significant winners (4 rose 3.8% or higher) while it looks like at least 40% of stocks fell 3.8% or more.
The other interesting things we noted today:
- There was no news, at least nothing significant. I tweeted about the President of the United States focusing on his most important initiative (this made the headlines and the White House website). He arranged that 'for profit' telecommunications companies will give $30 / month off eligible households spend on high-speed internet, and that many of them will offer $30/month plans to those same eligible households. These are households with limited or no income, and that typically receive other forms of support (e.g., SNAP EBT or rent support). This is good charity / welfare work, but is hardly news to send the market down 3% or more.
- The futures were down in the morning and there was no 'head-fake.' There was a small lunch-hour rally that subsided as quickly as it started.
- There were specific stocks that fell on earnings news. One such stock, Party City Holdco, $PRTY, we used to own. It fell to $1.18 today, down 61.44%. Now, to be honest, the news was not great. They are facing cost pressures and revenue did not keep up with inflation, and they made the mistake of having inflated their SG&A costs. They agreed last year to build a new HQ building, which made for bad publicity in this report. Was it bad enough that this company with $1.5B in debt is now only worth $140M in equity market cap? Not sure it is this bad, but this shows how unforgiving the market is for companies that show signs of strain in our economic conditions and have not taken appropriate action.
- Another down stocks is Palantir or $PLTR and another is Boeing $BA. Two more were $Lyft and $Uber. Previously we saw Amazon $AMZN and Tesla $TSLA fall significantly, and going back a few weeks, the GAP $GPS fell as well. There are many negative story stocks.
- There was an article that caught my attention on Sunday. There is an ETF that track small capitalization biotech stocks, the $XBI. It is down significantly and the article discussed how many (or was it most) small capitalization biotech stocks were trading below their cash on hand. What they meant in the article is that the long time horizon bet that one of these companies will discover an important cure and pay off like a lottery ticket is worth less now than it was before. The market fear is that these companies will spend their cash, and even if they discover a new drug (or one out of 10 discovers a new drug), it won't be worth it to hold a set of these companies. Therefore, small cap biotech is down.
We have experienced this first hand, and see it in the model run results (the CQNS DOWN Run results has many biotech stocks as being not efficient).
There is one stock we notice, Dollar Tree or $DLTR. This stock is up ~50% from when the announced they were raising prices by 25% across the board, or the day they became $1.25 Tree. The joke is on the consumer, because their costs are likely up 10% but prices are up 25% and their stores (near us) are full of merchandise and shoppers.
Here comes our opinion (not investment advice):
We see the US economy, when it has the right political and monetary leadership, as being unstoppable, innovative and just great. We see the USA leading the world in innovation, productivity and high value products. We also see the immense value in our largest trading partners such as China, Japan, Europe (collectively), Mexico, Canada and the rest of the world. The world follows the lead of the United States. The USA still has the ability to create value through its corporations.
However, when political and monetary leadership loses the confidence of the investor class, and actions to tighten and shrink the economy are taken, the market takes notice. This has been true since the 1920s, and even well before that.
I miss a few of our former US Presidents who knew how to support investors, and hope we elect one again soon. I am in particular thinking about President Reagan, Presidents Bush (Sr. and Jr.), President Clinton and President Trump.
This was a day for US Equities markets to test support levels that would indicate a market trend reversal down (which according to the Dow Theory signals a sell for all stocks). What did our President and Vice President accomplish and promote today? They arranged a $30/month discount for high speed internet for needy, eligible households to be given by telecommunications companies by 'volunteering' to create discount service plans, and likely paid for by our tax dollars. This is a welfare program that hurts companies (but progressively helps the poor to watch videos, listen to music and read websites). I read the White House press release and even saw a Tweet from @POTUS promoting it with a video where VP Harris was taking time from her busy schedule to discuss it publicly.
What we needed was a President and Vice President that reassured the investing public, and took steps to help business make and keep more profits. We need more success stories and fewer stories of decline like Party City, Amazon and the Gap.
To stretch this BLOG even further, US Advanced Computing Infrastructure, Inc. feels strongly that the United States of America needs a more aggressive industrial policy towards energy production. We need to produce more carbon-based fuels of all kinds (oil, natural gas, ethanol and coal). We also need to produce capital-intensive energy that is renewable, including nuclear power, wind and solar, to support new industries like bitcoin mining, electric vehicles, general economic growth, and data centers for internet-based businesses. We need pipelines, many new pipelines, to connect our brothers in Canada with our refineries, markets, and export facilities.
Finally, markets are auto-regressive. This means that they take into account what happened in the past to decide what to do in the future. If the markets fall for five weeks, it may be more likely they fall for another week. This has many causes, but I will give you a simple one. My mother (87 years old) and I spoke for Mother's day. She asked if she should sell her retirement assets. I said no, everything should be ok. However, if the market falls for another week and she sees Jim Cramer yell "SELL, SELL, SELL" she will probably have her investments liquidated.
A few final thoughts:
Never catch a falling knife.
FOMO is a cost effective strategy right now
We do not know whether the market will go up or down tomorrow
We are building our buy-list for when we think the market is ready to rise again.
President, US Advanced Computing Infrastructure, Inc.
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President and Investment Advisor Representative