Live Markets U.s.: In COVID crisis, retail investors catch the trading bug

Fangdd Network

15/06/2020 16:48

* Stocks well off lows; Nasdaq now down around ~0.3%
    * All major S&P sectors still red; energy hit hardest
    * Dollar, gold and crude fall; U.S. 10-yr yield ~0.68%

    June 15 (Reuters) - Welcome to the home for real-time
coverage of U.S. equity markets brought to you by Reuters stocks
reporters and anchored today by Terence Gabriel. Reach him on
Messenger to share your thoughts on market moves:
terence.gabriel.tr.com@reuters.net
    
     
    IN COVID CRISIS, RETAIL INVESTORS CATCH THE TRADING BUG
(1146 EDT/1546 GMT)
    Recently, brokers have taken notice of an interesting
anomaly. That is, the relative performance of institutional and
retail investors.
    Goldman Sachs notes that, although their Hedge Fund VIP and
Mutual Fund overweight baskets are both up 45%, handily
outpacing the S&P 500's  .SPX  recent 36% rally, that a basket
of the most popular retail trading stocks has returned an
eye-popping 61%.
    Meanwhile, Societe Generale SocGen is also taking a close
look at retail investors, and their recent fascination with
low-quality stocks.
    In a research note, SocGen says the markets have been
"reacting in bewilderment at the behavior of retail investors,
in particular those trading on the Robinhood platform." Indeed,
trading activity has "ballooned, "nonsensical" buying in
bankrupt stocks has exploded, and small stocks are leaping in
price on "zero news."
    Examples include action is stocks such as Hertz Global
 HTZ.N   urn:newsml:reuters.com:*:nL1N2DS0LZ, and Fangdd Network  DUO.O . Fangdd's
resemblance to FAANG stocks  .NYFANG , is in name only.
    According to SocGen, one explanation can be that retail
investors often speculate in penny stocks and risky equities
where "illiquidity and distress combine to generate high levels
of daily volatility, enticing the day trader community," and
occasionally generating strange share price activity. 
    In any event, SocGen says that the fascination with retail
traders comes at a time, courtesy of COVID-19, when the number
of distressed companies has increased substantially. This
coupled with cheap access to the market via platforms such as
Robinhood, and stimulus checks potentially finding their way
into accounts, and it may be no surprise that the retail
investor may have caught the trading bug.
    And when it comes to "bombed out distressed equity," retail
investors can certainly have a bigger voice, because these
stocks are just too small or too speculative for institutions to
dabble in.
    However, SocGen says that as recent investors in Fangdd
Network have learned, "stocks that go up 'by mistake' don't stay
up for long."         
    (Terence Gabriel)
    *****
    
    
    SHOULD CURVE CONTROL BE THE NEW NEGATIVE RATES? (1058 EDT/
1458 GMT)
    As bank stocks faltered again on Monday, one economist
questions the appropriateness of yield curve control "the logic
behind implementing this policy lacks merit at this juncture."
    "It appears the negative interest rate crowd has now latched
on to yield curve control as the next big idea in monetary
policy," wrote Mizuho U.S. chief economist Steven Ricchiuto
following the FOMC meeting last week and Fed Chair Jerome
Powell's comments.
    "A gradual steepening is a healthy development, as it shows
that investors are increasingly confident in the recovery
process and that this country will manage to avoid the
deflationary spiral that appears to be taking root in both
Europe and China," the economist wrote.
    "More importantly, a steeper curve will help keep banks
profitable, and healthy banks are the key to the economic
recovery while the government’s imposed liquidity crisis is
unwound over the balance of this quarter and through the peak
summer months," he said. "Banks are unique in their position as
being able to amplify monetary policy stimulus." 
    Of note, on Monday, amid this chatter, the S&P 500 banks
index  .SPXBK  is down around 2% compared with a 1% drop for the
benchmark S&P 500  .SPX  index. 
    In the most recent sell-off, the sector dropped 11% compared
to a 4.8% drop for the S&P, while year-to-date banks have
tumbled a stunning ~33% vs. the benchmark's ~6% loss. 
    
    (Sinéad Carew)
    ***** 
    
    
    IT'S ALIVE! NEW YORK MANUFACTURING EMERGES FROM COMA (1001
EDT/1301 GMT)
    New York, by far the hardest-hit state from the coronavirus
pandemic, also had among the most strict lockdown restrictions
to halt the disease's spread. 
    But while the abrupt economic halt knocked the state's
manufacturing sector out cold, data released on Monday suggested
the patient is well on the road to recovery.     
    Business activity in New York State contracted this month at
a much shallower pace than economists projected, according the
NY Federal Reserve.
    The NY Fed's Manufacturing Index  USEMPM=ECI , otherwise
known as the Empire State Index, came in a hair below zero at
-0.2, blowing past the -29.8 analysts expected and a drastic
bounce from May's reading of -48.5.
    The index reached its nadir in April, when it plunged to a
record low -78.2.
    An Empire State reading below zero indicates contraction.
    But as Oren Klachkin, lead U.S. economist at Oxford
Economics writes:
    "Weaker demand, ongoing supply chain disruptions and
heightened uncertainty make a V-shaped recovery doubtful." 
    "More likely, the rebound will be in two phases: a quick,
but fairly short-lived, partial snap-back, followed by softer
and protracted recovery," Klachkin adds.
 
    Investors started the week in a decidedly risk-off mood.
    All three major U.S. stock indexes are lower in early
trading.
    
    (Stephen Culp)
    *****

    
    BLUE MONDAY AT THE START (0858 EDT/1258 GMT)
    U.S. stock index futures are tumbling on Monday as a recent
jump in coronavirus cases in China and parts of the United
States is calling into question investor hopes for a quick
economic rebound.  .N 
    That said, the futures are off their worst overnight levels.
Dow e-minis  1YMcv1  slid nearly 4%, but now find themselves
down just over 2%.
    In any event, the speed and severity of the recent selloff
has been especially sharp, and harkens back to the major
downturn that began in February.
    At that time, the S&P 500 index  .SPX  topped on February 19
and slid as much as 8.1% over the next 4 trading days. After
hitting its most recent high on June 8 the S&P then collapsed as
much as 7.7% in the last 4 trading days.
    Of note, through Friday, the market's implied volatility
measure, the VIX  .VIX , has seen 5 straight days of higher
highs and higher lows. And now on Monday, it has hit a fresh
1-month high at 44.44 before dipping as low as 40.61. With
historical volatility on the VIX price action itself also
rising, traders may be increasingly on edge. A reversal below
Friday's trough at 34.97 today will at least end the streak of
higher lows. 
    Here is your premarket snapshot:
 
 
    (Terence Gabriel)
    *****

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
premarket06152020    https://tmsnrt.rs/2AC5uxh
Empire State    https://tmsnrt.rs/2UM9zWt
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
 ((terence.gabriel.tr.com@reuters.net
terence.gabriel@tr.com 646-223-4122))