theStreetFika: Scones, Sips, Strategy & Stocks

2020 was one of Wall Street’s wildest years on record. Following an early-year collapse, everything came back roaring to close the year at record highs. Stocks in the S&P 500 index rose 16%, while the tech-heavy Nasdaq gained a remarkable 44%. Even the Dow didn't miss out and it began the first trading session of 2021 at a record. But it wasn’t just stocks. All assets hit stratospheric levels. Gold (+24.6%) and silver (+47.6%) had their best years since 2010. And Bitcoin gained more than 300% in 2020. The b-word Throughout the year, we kept hearing about a bubble that would soon pop. It sure looks like a bubble, smells like a bubble, and exhibits price-to-earning ratios like a bubble, but it doesn't look like it will pop anytime soon. So were the bubble calls just wrong? Or are we in a new era of wild speculation driven by cheap money that must inevitably come to an end? I lean towards the latter. So am I going to sell now? Absolutely not. The stunning performance of so man...

Last week, the Financial Times (FT) reported that SoftBank Group Corp. may be behind the recent roaring rally in large-cap U.S. technology stocks. According to the FT, in addition to buying over $4 billion in individual big tech stocks (Amazon, Apple, Tesla, Microsoft, Facebook, Alphabet), SoftBank bought options tied to around $50 billion worth of these individual stocks. But before the FT dubbed SoftBank the “Nasdaq Whale” and blamed it for the rally, many argued that the frenzy was squarely on the shoulders of “bored” unprofessional investors on platforms such as Robinhood who have taken to option trading as a new hobby while locked in.  Could it be possible that options-buying tied to individual stocks could move markets in this way and trigger this massive rally? In "Bad signs for the epic market rally" , I mentioned that the market is indeed very top heavy; with 1% of the stocks in the S&P 500 - Alphabet, Amazon, Apple, Facebook and Microsoft - accounting for more t...

In the previous post, I discussed reasons that the stock market is rising despite the economic devastation of the pandemic. In this post, I’ll discuss ominous signs from the market rally: Top 1% account for most of the gains: The market is very top-heavy. 1% of the stocks in the S&P 500 - Alphabet, Amazon, Apple, Facebook and Microsoft - account for more than a fifth of the S&P 500’s market value. While those tech giants have gained around 40 percent so far this year, the 495 other stocks in the index have collectively lost a few percentage points. This is bad because the US workforce is concentrated in the other 99% of the stocks. Insider selling is booming: Some leaders of corporate America are skeptical about the sustainability of this rally and are rushing to cash out. According to CNN Business and TrimTabs Investment Research, insiders have dumped more than $50 billion worth of shares since the start of May. The same source also notes that August is on track to be the thi...

  In the early stages of the pandemic, the S&P 500 index dropped a third of its value. Since then it has roared back, soaring more than 50 percent from its low in late March and setting an all-time high last week. This seems very implausible when set against the current state of the economy and the ongoing devastation caused by the pandemic. So why is the stock market rallying in the face of a pandemic and bad economic news? Several explanations are plausible. The stock market is not the economy: The stock market represents publicly traded companies only; it’s not the whole market. Most importantly, it’s always forward looking; i.e. it’s an indicator of the future earnings of those companies and how they would fare in the future. A rising stock market indicates that investors think these companies will do better in the future. On the other hand, a falling stock indicates that investors are pessimistic about the future earnings of companies. Continued income support for the ec...