Time for a long overdue stock market correction? Insiders are cashing out. Today, outsiders cashed out, too. Three separate coronavirus vaccine Phase 3 trials will run in the US this summer, under government supervision. Dr. Anthony Fauci confirmed that the government will fund advanced stages of testing for two of the leading vaccine candidates, Moderna’s vaccine and another one from AstraZeneca an…
Every bubble eventually bursts, a lesson President Trump may be reminded of when it comes to the stock market in the near-term.
And in this instance, the pin holder is none other than Trump’s frequent target of Twitter criticism — his hand-picked Federal Reserve chief Jerome Powell. The Dow Jones Industrial Average tanked more than 1,800 points on Thursday following the latest decision from the Fed on interest rates. Bank stocks such as Wells Fargo and Bank of America were being crushed in intraday trading. So were hot stocks of the bubblish moment that has ensued in equites since late March such as new public company Nikola and COVID-19 blasted Carnival Cruise Line.
The sharp downward action in markets naturally caught the attention of Trump.
“The Federal Reserve is wrong so often. I see the numbers also, and do MUCH better than they do. We will have a very good Third Quarter, a great Fourth Quarter, and one of our best ever years in 2021. We will also soon have a Vaccine & Therapeutics/Cure. That’s my opinion. WATCH!,” Trump tweeted.
Trump administration official and confidante Peter Navarro also ripped the Fed.
“What I would say is that Jay Powell and his remarks yesterday, I think probably the worst bedside manner of any Fed chairman in history. You think the best strategy for Jay Powell going forward would simply to provide the data and let us know where interest rates are going and keep his mouth shut,” Navarro told Yahoo Finance editor-in-chief Andy Serwer in an interview. “I mean, there’s the old joke I’m an old business professor, and the old joke in the marketing thing is if Jay Powell was going to market sushi, he’d sell it as cold, dead fish.”
So what exactly triggered this latest beatdown of Powell by the Trump administration? The verbal lashings have been few and far between in recent months as the market ripped more than 40% higher off the March 23 lows… in large part because of the Fed’s aggressive actions to drive an economic rebound from a major health scare.
While the Fed continued to reiterate a Trump favorite — low interest rates — it was Powell’s comments on the jobs outlook that spooked the market.
Powell said “millions” of people will not return to work for some time because of the aftershocks to businesses from the COVID-19 pandemic. The Fed chief suggested the lack of jobs would be rooted in the reality that companies were unable to survive the pandemic or the role no longer exists in the new world order.
WASHINGTON, DC – APRIL 29: In this screengrab taken from the Federal Reserve website, Chair of the Federal Reserve Jerome Powell issues the Federal Open Market Committee statement on April 29, 2020 in Washington, DC. Powell said the Federal Reserve will continue to use its lending powers “forcefully, proactively and aggressively, until we’re confident that we are solidly on the road to recovery” from the economic downturn caused by the coronavirus pandemic. (Photo by Federal Reserve via Getty Images)
By extension, that would suggest a certain kind of structural unemployment that may continue to weigh on U.S. growth unless workers get re-trained for new jobs.
“We believe perhaps 60% of the jobs lost because of the global coronavirus recession will be regained by the end of the year. But that remaining 40 is a lot of jobs that will still need to be regained over multiple years,” Oxford Economics chief U.S. economist Gregory Daco said on Yahoo Finance’s The First Trade.
And if in fact this will be a painfully slow recovery as the Fed strongly hinted at Wednesday, then indeed the market has rallied too hard too fast off the lows. Numerous pros Yahoo Finance have talked with lately have suggested the market has priced in a V-shaped economic recovery later this year that extends into 2021. That thesis has had investors hardcore buying beat-up cruise lines stocks and airlines like Delta the past month while also pushing up high beta tech plays like Netflix.
Even bankrupt companies such as Hertz and J.C. Penney saw hot money flow into their stocks, a very bizarre move considering, well, the companies have filed for bankruptcy.
But Powell’s commentary puts that entire risk on at all cost thesis into question. In effect Powell took his mighty pin, stuck it between his two middle fingers to show Trump and then popped the bubble. He in not so many words said the stock market is overvalued at current levels given a sane outlook for the U.S. economic recovery.
“I think most likely you will see a 10% correction from here,” BNY Mellon chief investment strategist Alicia told The First Trade. “I wouldn’t say we’re in a bubble. I will say this, and I might date myself a little bit. Last week was the first time in 20 years where I’ve felt like it was the late 1990s. It just had that feeling that you couldn’t lose. When you get that feeling you should be scared. You saw it when the companies filing for bankruptcy were rallying a crazy amount.”
Ultimately, Trump should be among the scared. The last thing a president with sinking approval ratings needs is yet another market rout ahead of a re-election bid. Dust off your armored suit, Jay Powell.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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Author: Brian SozziEditor-at-Large
Why BrightView Holdings Stock Tumbled 19% Today
BrightView Holdings (NYSE:BV) stock tumbled 18.8% in Thursday trading, closing the day below $12 a share for the first time in nearly a month. And yet, BrightView Holdings is a commercial landscape-services company — landscaping — as in one of the few businesses that you might think could continue to operate safely in the middle of summer, even if the coronavirus comes roaring back onto the scene (as many investors seemed to think when they began selling stocks today).
So why did BrightView stock go down, as well?
Image source: Getty Images.
While BrightView stock may have gotten caught up in a wave of selling that seemed to swamp all stocks today and pulled the entire S&P 500 down nearly 6%, BrightView also had its own particular problems to contend with. Specifically, today BrightView announced that the “underwritten secondary offering” of 10 million new shares that it announced yesterday would be priced at just $13.40 per share — a good $1.70 below where BrightView stock was trading at the end of yesterday.
That hint that BrightView stock might not be worth quite as much as it was selling for at the time most likely provided the catalyst that initially prompted investors to sell the stock. And on a day like today, once that selling had begun, it just kept building momentum and increasing in size. By the time trading ended for the day, BrightView stock was below $12 … and below the price it had set for its secondary offering.
Will the stock recover? Maybe, but I personally wouldn’t bet on it.
First and foremost, consider that even after its sell-off, BrightView stock still trades for a whopping 52 times trailing earnings. (And that’s not even considering the effect of the company’s more than $1.2 billion in net debt. Factor that into the picture, and the stock’s “debt-adjusted” price-to earnings ratio is more than 100 times).
On top of that, as BrightView admitted in its press release describing the secondary offering price, “certain stockholders” are the ones selling all 10 million of the shares on offer, and these shareholders “will receive all of the proceeds from this offering.” Translation: BrightView is getting no cash from this stock sale, so it won’t be able to even begin whittling away its debt load.
All the money is going to insiders cashing out … on a stock that costs more than 52 times earnings. Is that the kind of stock that you would want to buy into?
Today, a lot of investors answered that question with a resounding “no.”
Author: Rich Smith
Dr. Fauci delivered more good news about coronavirus vaccines
Vaccines for the novel coronavirus have shown promising results in animal and human trials so far and there’s real hope some of them could be available to use as soon as this year. The drugs still need to clear the final stages of clinical trials and prove they can prevent COVID-19 infections before they can be approved for general use. But coronavirus vaccine research has advanced at such an incredible speed that the final trial phases will take place this summer for some of the vaccines. There are more than 130 vaccine candidates in the works right now, with around 10 of them having reached various stages of human trials. Dr. Anthony Fauci has now confirmed that three of these will be used in extensive Phase 3 trials funded by the US government.
“The coronavirus vaccine effort is progressing very well, and we expect more than one candidate vaccine to be in advanced clinical testing by early summer,” Fauci told CNN. “This is good news for the overall coronavirus vaccine effort.”
The government will fund Phase 3 studies for all three chosen vaccines, the director of the National Institute of Allergy and Infectious Diseases (NIAID) said. Two of them are hardly surprising, as they’ve made the news quite a few times in the past few months. Moderna will be the first to kick off Phase 3 trials in July, followed by AstraZeneca’s Oxford candidate a month later.
The third vaccine comes from a company that has yet to announce any vaccine results, and that’s because Johnson & Johnson hasn’t even started Phase 1 trials. According to The Wall Street Journal, J&J will start the first human trials in the second half of July and will move to Phase 3, pending the outcome of the first stage and subsequent regulatory approval.
Surprisingly, Pfizer and BioNTech aren’t included in the NIAID program. The two companies partnered on Phase 1 trials in Germany and the US a few weeks ago, with the BioNTech vaccine being a genetic drug similar to Moderna’s concept. A person familiar with the progress on this vaccine told The Journal that Pfizer could begin its Phase 3 trial in July.
AstraZeneca and Oxford already announced their own Phase 3 study in the UK and other regions. Recent reports noted that there might not be enough sick people in Britain anymore, which could slow down Phase 3 research for the drug.
Each of the three US-sponsored vaccine studies will include 30,000 people who will receive either the experimental drug or a placebo. More than 50 sites will be enrolled in the study, most of them in the US. Other countries may also be chosen depending on how the disease evolves. The researchers will want to conduct the studies in locations where the virus keeps spreading. That’s the only way to ensure that volunteers can be exposed to the pathogen so they can verify the drug works.
The studies will look at whether the vaccines can block the infection, whether they’re safe for participants, and whether they can be advanced to standard COVID-19 prevention protocols. If the drugs pass these final hurdles, they may be available for emergency use at some point in the fall or winter.
What’s also important to note is that an independent committee will monitor the safety of the drugs and will compare how the vaccines perform. They’ll also look at whether some drugs are better for specific subpopulations, The Journal says. This is in line with recommendations from Fauci and other experts who wrote a paper on how to fast-track coronavirus vaccine development safely and efficiently.
The point of the extensive study isn’t to single out just one vaccine. Fauci and others also explained that the world needs as many shots on goal as possible, and more than one vaccine candidate will hopefully prevent COVID-19 infections. The more vaccine options we have, the easier it’ll be to deploy them at scale in the coming years.
The manufacturing and distribution logistics are yet to be ironed out, but work has already started. AstraZeneca already obtained orders for hundreds of millions of doses from the UK, US, and other regions. The US government alone invested $1.2 billion for 300 million doses.
Last week, Fauci said the US should soon have 100 million doses of one of the candidates, as manufacturing will likely start before Phase 3 trials are completed. He explained that it’s a financial risk, but it could speed up delivery if the drug proves to be effective.
Author: Chris Smith