FOMO Redrawing U.S. Stock Charts as Investors ‘Ride the Wave’

FOMO Redrawing U.S. Stock Charts as Investors ‘Ride the Wave’

The best August in 34 years. The fastest start to a September in a decade. Eleven gains in 13 sessions, with records coming almost daily. CNBC’s Tyler Mathisen talks with Scott Nations of Nations Indexes breaks down how to invest in crude oil right now as crude futures are under pressure. Profitable companies with plenty of cash on hand can bounce back quickly. The $400 billion corner of quant investing known as risk parity has a history of doubt and division, and Bridgewater Associates has started a new chapter. Yum Brands and KFC US plans to invest $6 million to “tackle inequality and uplift Black students, educators, entrepreneurs and social change agents.” Investors were happy to see the chances drop for a worst-case scenario playing out in the cruise ship industry.

RF markets stocks

Photographer: da-kuk/Getty Images

Photographer: da-kuk/Getty Images

The best August in 34 years. The fastest start to a September in a decade. Eleven gains in 13 sessions, with records coming almost daily.

The superlatives are piling up for American equities that lately seem to only go higher. And while stocks at all-time highs are bound to make for some eye-popping charts, the relentlessness of the latest rally is pushing some measures of velocity to levels that are turning heads among strategists and money managers.

“All of a sudden, you see some investors say we’ve got to catch up and they keep wanting to pour more money into momentum and ride the wave,” said Chris Gaffney, president of world markets at TIAA Bank. “There’s risk there, of course — there’s always risk when you start chasing. But, on the other hand, if the wave is going to continue, you ride it as long as you can.”

The following charts depict some of the extreme moves seen in stocks lately:

The S&P 500 is trading about 15% above its average price for the previous 200 days, a gap that demonstrates the persistence of the gains. The last time it got that extended, in January 2018, a historic volatility shock ensued and the S&P 500 tumbled into a correction. Back then, the Nasdaq 100 was about 17% above its 200-day moving average. Now, it’s 30% higher than it.

Nasdaq 100 trades more than 30% above its 200-day moving average

“This matters only for the short term, but reflects how extended we’ve gotten,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

The S&P 500’s 14-day Relative Strength Index (RSI) — which measures the magnitude and persistence of price movement — is flashing a major warning sign. When the RSI passes 70, the index is considered overbought. It’s now above 80, the highest in almost three years.

S&P 500 is the most overbought since January 2018

The wave’s been rolling so furiously, it’s virtually washed out all the bears. Bets against New York Stock Exchange-listed stocks fell to a six-year low in mid-August, according to Sundial Capital Research. That’s more than 10% below the long-term trend in short interest.

When bullish bets have been similarly low, stocks have delivered below-average gains in the short-term, Jason Goepfert, president of Sundial, wrote in a note this week.

relates to FOMO Redrawing U.S. Stock Charts as Investors ‘Ride the Wave’

Similarly, readings of investor bliss have hit levels not seen since the dot-com era. Citigroup’s panic/euphoria model, which tracks metrics from options trading to short sales and newsletter bullishness, is having its longest run of extreme bullishness since the early 2000s. A reading that tracks buying momentum against selling momentum in the S&P 500 has climbed to a record.

S&P 500 Fear / Greed Gauge Jumps to Record High

And then there are the technology stocks that have propelled the rally from the start and remain its motor today. Apple Inc. and Tesla Inc. are the stalwarts, surging Monday simply because their shares became more affordable following a stock split. Apple’s the first American company to top $2 trillion in market value, while Tesla’s on a tear of 880% in the past year.

But it’s a broad rally in the space, too. The S&P 500 tech index is headed for a 10th straight gain in its longest rally since February 2019. The tech-heavy Nasdaq 100 is up 41% this year, besting the S&P’s advance by about 30 percentage points. That’s pushed the relative strength of the Nasdaq over the S&P 500 to the highest on record.

Relative performance of Nasdaq 100 vs. S&P 500 rises to a record

Matt Miskin, co-chief investment strategist at John Hancock Investments, is overweight tech due to the sector’s strong balance sheets, higher margins and return on equity.

“Those components remain a compelling bull case for the tech sector,” he said in an interview. “Valuations are getting stretched — we fully see that — but as you look across markets right now, there’s a big divergence between those companies that are keeping earnings afloat and those that are seeing significant negative earnings results.”

— With assistance by Claire Ballentine


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Crude oil trade right now is ‘look out below,’ says investing pro

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Next Stock Market Crash: Where to Invest $10,000

Next Stock Market Crash: Where to Invest $10,000

After this year’s COVID-19 crash and the market’s ongoing instability, many people are looking for stalwart stocks to buy ahead of the next downturn. At the same time, savvy investors know that market corrections are excellent opportunities to purchase shares of quality companies at a discount. So what makes a stock ripe for investment after the market tumbles?

There are three things I look for to indicate a company will be resilient when others aren’t: high profit margins, plenty of cash on hand, and more than enough cash flow to pay upcoming debt and expenses. With all this in mind, let’s learn more about three companies that might be worthy additions to your portfolio during or after the next meltdown.

View photos

A bear figurine roars at a falling stock market chart.

Image source: Getty Images.

Payment processing giant Mastercard (NYSE: MA) is a great potential investment as a result of its highly profitable, easily scalable, and time-tested business model. Every time a consumer makes a purchase using one of the company’s cards, Mastercard takes a cut, allowing it to collect an impressive sum from the countless transactions that occur each day. Thanks to the growing popularity of cashless payment processing, Mastercard is strongly positioned to make the most out of its massive presence in the space.

Boasting a profit margin of 45.1%, $11.5 billion in cash on the books, and a free cash flow of $8.2 billion over the past four quarters, Mastercard gives investors a lot to like. In the purely hypothetical event that Mastercard’s revenue drops to zero overnight, its $7.2 billion in trailing operating expenses could be paid for at least a year, and roughly a third of its long-term debt of $12.5 billion will come due in the next five years, meaning that it won’t struggle to stay current even if its revenue takes a hit.

Mastercard’s stock is currently beating the market, even though the scale of its initial decline during the crash very closely tracked the S&P 500. Finally, as a bonus, the company’s modest dividend payment hasn’t declined since it went public, including during the Great Recession,, so investors can be confident in its consistency.

Like Mastercard, Visa (NYSE: V) is a card-based payment processor that has stood the test of time thanks to a toll-collecting business model executed at global scale. With billions of its payment cards in active use around the globe, Visa can process more than 65,000 transactions per second, earning revenue with each card swipe. On an annual basis, Visa processed around 70 billion transactions in 2018 compared to Mastercard’s 34 billion, so it has a significantly larger market share. In fact, by purchase volume, Visa is the largest card-based payment processor based in the U.S.

Visa also has strong fundamentals. Its profit margin of 51.4% is even higher than Mastercard’s, and its dividend is nearly the same. Despite having more revenue than Mastercard, with $22.9 billion in trailing-12-month inflows, Visa has lower operating expenses. Visa’s liabilities also include around $3 billion in current debt as of the second quarter in addition to $703 million in pension and retirement liabilities.

Visa’s stock is also slightly ahead of the market for the year.. Critically, Visa shares a near-duopoly in the cashless payment space with Mastercard. This means that as cashless payment becomes the norm, Visa’s profitable core business will expand. Finally, both companies will benefit from climbing economic activity in the aftermath of the pandemic-induced reductions.

SPY Chart

SPY data by YCharts.

PayPal Holdings (NASDAQ: PYPL) is a great financial services growth stock. Unlike Visa and Mastercard, PayPal’s primary business is online payment processing rather than card-based processing. When businesses or consumers seek to transfer funds or issue invoices online, PayPal is the go-to; as of 2016, 99% of online users in the U.S. were aware of PayPal, and 76% had used it in the past. With each transfer, the company extracts a fee that’s a percentage of the sum changing hands. Importantly, PayPal also offers embeddable payment processing tools for merchants’ websites, thereby potentially capturing market share from Visa and Mastercard in the process. E-commerce is growing rapidly, so PayPal is well-positioned to prosper.

PayPal is a much younger company than either Visa or Mastercard, and it isn’t as profitable, with its margin of 13.4% appearing puny in comparison. It also lost less value in March, and has grown upwards of 93% this year through Tuesday’s close, far outpacing the other two. The company’s lower profitability is probably a result of its high cost of revenue, which was $10.6 billion over the last 12 months, not to mention its $5.7 billion in operating expenses.

The company is cash rich, with $13 billion in hand that could help it to bounce back after a major mishap. Cash on hand will also open the door to acquiring fintech companies that may improve its ability to serve customers. This is important, as over the last 10 years PayPal has acquired smaller players voraciously, culminating with its $4 billion purchase of the online couponing aid company Honey Science late last year.

Acquisitions aside, in the most recent quarter PayPal only reported $8.8 billion in long-term debt. When paired with its strong cash position and its scalable business model, the company will likely continue to grow for quite some time. In other words, PayPal is positioned to bounce back from the next severe market drop, so it would be great to grab at a discount.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Mastercard, PayPal Holdings, and Visa and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

Next Stock Market Crash: Where to Invest $10,000 was originally published by The Motley Fool


Author: Alex Carchidi, The Motley Fool

Bridgewater’s Risk-Parity Shift Jolts a $400 Billion Quant Trade

Bridgewater’s Risk-Parity Shift Jolts a $400 Billion Quant Trade

The $400 billion corner of quant investing known as risk parity has a history of doubt and division, and Bridgewater Associates has started a new chapter.

Ray Dalio’s $138 billion asset manager has tweaked its version of the strategy by moving into alternatives to conventional bonds as yields hit historic lows, a person familiar with the matter has confirmed.

Bob Prince

Bob Prince

Source: Bloomberg

The shift, telegraphed by the firm in a July report, drives a new wedge between Bridgewater and risk-parity purists and speaks directly to concerns that have long dogged the systematic investing approach.

Since the strategy allocates money across assets based on how risky they are — meaning it buys more securities with lower volatility — it typically takes a heavy position in sovereign debt.

“It is pretty obvious that with interest rates near zero and being held stable by central banks, bonds can provide neither returns nor risk reduction,” a team led by Co-Chief Investment Officer Bob Prince wrote in the July report.

Recent decades have seen an inexorable plunge in bond yields

Bridgewater’s famous All Weather portfolio has therefore been moving into gold and inflation-linked bonds, diversifying the countries it invests in and finding more stocks with stable cash flow.

The idea is to replicate the long-term positive returns typically generated by bonds while finding alternative ways to hedge a downturn in stocks, especially if higher inflation upends low-yielding nominal debt.

Bridgewater’s conviction that ultra-low yields are a game-changer for risk parity will resonate with many on Wall Street, who have also been fretting over the fate of traditional portfolios that allocate 60% to stocks and 40% to bonds.

According to the firm, about 80% of local-currency government bonds have been trading below 1%, which limits the room for such notes to rise in value during a bout of risk aversion since investors can simply hoard cash instead.

That, combined with the potential for losses if yields jump from record lows, means that the world of government debt is potentially losing its function as a safety valve in portfolios.

Not everyone in the industry shares that view. While Dalio is a pioneer of risk parity — he first crafted it to manage his personal trust in 1996 — Edward Qian, CIO for multi-asset investments at PanAgora Asset Management, was one of those to help coin the name in a seminal 2005 paper. He’s keeping faith in the traditional version of the rules-based strategy.

“You cannot just say because bond yields are low, they’re going to rise and let’s not invest in government bonds,” said Boston-based Qian. “That’s contradictory to the risk-parity approach.”

There’s plenty of disagreement in the industry over how to define and execute risk parity, but the general idea is to award weightings in a portfolio based on each asset’s volatility and then apply leverage to boost returns. The aim is to achieve similar results to riskier strategies but with a smoother, safer ride.

PanAgora is telling clients to stick with government bonds for their diversification value, rather than try to guess what their future returns will be.

Rallying bonds and stocks have been a boon for risk parity

“Predicting inflation is just as difficult as predicting bond yields,” said Qian. “Risk parity is predicated on that predicting asset price is very difficult so you’re better off with a diversified portfolio.”

That approach has boomed in the post-crisis era, as rallies across bonds and stocks helped a benchmark for the strategy gain around 130% over the past decade. At the same time, it also morphed into a whipping boy for critics that argue its volatility-targeting approach exacerbates selloffs.

The size and scale of Bridgewater’s changes to the All Weather fund are unknown, and the Westport, Connecticut-based giant has been clear that it sees the adjustments as consistent with its risk-parity framework.

“Our balanced approach to beta has never been about a particular asset allocation, nor has it ever been reliant on any particular asset class,” the firm’s investing chiefs wrote in July.

Philippe Ferreira at Lyxor Asset Management has some sympathy for the Bridgewater concerns. In the medium term, should monetary policy makers signal a return to tighter policy, a jump in yields and drop in equities would spell big trouble for the strategy, the cross-asset strategist said. But in the mean time, it is unlikely to lose favor.

“It looks we are far from monetary policy normalization,” he said. “In an environment where valuations are rich in both equities and fixed income, risk parity strategies might even be more attractive for risk control purposes. They have a substantial allocation to bonds which are protected by central bank purchases.”

At Mellon Investments, Roberto Croce rejects the doom and gloom about government bonds.

In a July report, the head of risk parity stressed that yields may be low but for the most part curves are still sloping upwards. That means risk-parity funds that trade bond futures can take advantage of what’s known as a roll-down strategy which exploits the shape of the yield curve.

Low-yielding Japanese bonds have been rising for decades now

And as PanAgora points out, history suggests that bonds can still provide protection, even at extremely low yields.

Japan’s sovereign debt has defied innumerable calls of a peak for nearly three decades and has mostly continued to hedge stock moves. It’s been a similar story in the euro area in recent years. Inflation famously never showed up in either place.

Bridgewater’s July report warns that the global bond rally may now be reversing. Japanese yields didn’t even revisit their 2019 low amid the pandemic, German yields have recovered much of their March move and U.S. Treasury yields seem to have found a bottom.

Yet for PanAgora, that hasn’t changed the role of sovereign bonds in risk-parity portfolios.

“People have pronounced the death of risk parity many times,” said Qian. “Risk parity can still be used in a way that’s consistent with the past, but you just have to not be afraid of leverage.”


Author: By
Justina Lee

Yum Brands announces $6 million investment to advance opportunity in Louisville's West End

Yum Brands announces $6 million investment to advance opportunity in Louisville’s West End

LOUISVILLE, Ky. — One of Louisville’s biggest companies is planning on advancing equity and opportunity in the city with a $6 million investment. 

Yum Brands and KFC U.S. announced on Wednesday plans to invest $6 million over five years in endeavors “that tackle inequality and uplift Black students, educators, entrepreneurs and social change agents.” 

The company said in a news release its investment will go toward multiple organizations and initiatives in the community, including: 

  • The Academy of Music Production Education and Development, which is expanding its full-service family support, increasing emphasis on technology skills, workforce development and business creation to drive economic growth, mobility and independence in West Louisville.
  • Local Initiatives Support Corporation, a community development organization that will establish a fund that provides grants to Louisville-based Black entrepreneurs and nonprofits to expand economic opportunity in West Louisville
  • Simmons College of Kentucky, a private Historically Black College in Louisville that is developing a program to recruit and train more Black teachers to enter Jefferson County Public Schools.
  • Evolve502, a nonprofit helping JCPS students in underserved communities pursue a post-secondary education through scholarships and support. 
  • Black L.O.V.E., a nonprofit to strengthen Black-led social institutions in Louisville, which will work with Black leaders and philanthropic partners to invest in areas recommended by the Black Social Changes Funders Network. 

“At Yum!, we know our brands, frontline restaurant teams and communities are much stronger when we have diverse people, voices and ideas at the table to tackle our biggest challenges,” Yum Brands CEO David Gibbs wrote in a statement. “With this expanded effort in Louisville, we are pleased to increase our partnership and investment in experienced local leaders and institutions that are already working to address the complex challenges of inequality.” 

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The investment is part of the company’s plan announced back in June to contribute $100 million over five years to promote equity and inclusion around the world.

“Tackling inequality is a long-term challenge that will require local businesses, governments, schools and philanthropists to establish new ways of partnering with and supporting talented community leaders who know the issues and the people most affected,” said Jerilan Greene, chief communications and public affairs officer for Yum Brands and Chairman and CEO of Yum Brands Foundation. “We’re pleased to be part of making education and entrepreneurship, which are both essential ingredients for a brighter future, more accessible to our fellow Louisvillians.”  

Reach Emma Austin at or on Twitter at @emmacaustin. Support strong local journalism by subscribing today:


Why Royal Caribbean Stock Jumped 41% in August

Why Royal Caribbean Stock Jumped 41% in August

Royal Caribbean (NYSE: RCL) shares outpaced a booming market in August, notching a 41% return compared to the S&P 500’s 7% increase, according to data provided by S&P Global Market Intelligence.

That rally erased just a small portion of recent losses for owners of the cruise ship giant, though. The stock remains lower by nearly 50% so far in 2020.

A retired couple on a cruise.

Image source: Getty Images.

August was another volatile month for Royal Caribbean and peers including Carnival (NYSE: CCL) and Norwegian Cruise Line Holdings (NYSE: NCLH). All three cruise giants reported second-quarter results that were dominated by a global pause in sailings.

In Royal Caribbean’s case, that pandemic-driven stoppage resulted in a near 100% drop in Q2 revenue as losses landed at $1.6 billion, or $7.83 per share. Carnival and Norwegian Cruise Lines each announced similarly jarring results, yet all three stocks outperformed the market during the month.

Investors were nonetheless pleased to hear that Royal Caribbean has enough cash on hand to navigate through many more months of suspended operations. A few limited sailings are starting in markets like Italy, meanwhile, as the COVID-19 threat lessens in some areas around the world.

Still, while it appears that Royal Caribbean will survive this crisis, there are major questions surrounding the timing of a return to a normal operating posture for this consumer discretionary business. That’s why investors might want to be cautious about buying any cruise ship company in hopes of seeing a quick and sustained stock price spike.

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Demitri Kalogeropoulos owns shares of Carnival. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

Why Royal Caribbean Stock Jumped 41% in August was originally published by The Motley Fool


Author: Demitri Kalogeropoulos, The Motley Fool

FOMO Redrawing U.S. Stock Charts as Investors ‘Ride the Wave’

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