The results are out, Apple and Tesla released terrific earnings data, optimistic guidance, and clear strategies for existing and future product endeavors. But the stocks traded down today because the analysts did not agree. It shouldn’t come as surprise as analysts have never been in wider disagreement of forecasts and good companies should continue to see good price action.
This week, as many already know, the market also saw a collision between the rising participation of day traders and Specialized Hedge funds. I’m clear that the term meteoric rise is being used to attract attention, but I admit that I have less interest in the rhetoric of the punditry and am more fascinated by what I see as a new generation of speculators, the Pindudes, and a new base for their activities, Robinhood, technology’s new answer to the traditional Boiler room. A little history can explain its negative impact on the broad markets. Just as in 2008, when banks were losing money on their mortgage loans, when financial institutions were losing money from their investment in mortgage backed securities, the easiest way to cover the losses was to sell something that was at a profit. Just as the markets experienced abrupt declines this week in many of the recently best performing companies, the same occurred in 2008. The difference is in the narrative. This week’s challenge was against a Hedge Fund that engages exclusively in shorting stocks and using social media to spread the word, and we know how that works. Well, yesterday the Pindudes did the same thing and followed the trading instructions of “WallStreetBets” a well broadcasted entity on the website Reddit, that used typical expletives in attacking the “suits” to insert some humor into the disaster. Inciting a riot, sort of? Anyway, the moral of the story is those who day trade have power, but it’s limited. And those who short companies on mischaracterizations, thankfully are also limited. Hence, today the markets continued their rise, even without Apple (AAPL) or Tesla (TSLA).
In the background Fed Chairperson Powell reiterated his commitment to keeping interest rates low, keep buying bonds and softening his outlook for inflation in the near term. This doesn’t necessarily help the markets, that would have to come AS a stimulus package, which curiously, but not surprisingly, isn’t going well at the moment. However, there are other occurrences in the economic picture that contributed to calming the day as Home Sales and Durable Good Production increased past expectations. And while today’s GDP estimated for the 4th Quarter of 2020 came in at 4%, below estimate of 4.2%, the overall picture is good, but not as good as expected, suggesting the first half of the year could see less robust recovery than previously forecasted.
Not necessarily all good for the markets unless there is constructive legislation out of Washington. In the meantime, declines and bounce backs are just as constructive in calming markets down in the near term, and as more earnings are released, new opportunities should start showing up.