A rocket scientist doesn’t need to discern that financial markets are full of juice right now, with the S&P 500 SPX,
ending Thursday in its fourth record of the young year and rising 72% from the March 2020 lows. The past twelve weeks have seen the largest stock inflows in history, according to Bank of America.
Here is another sign. Debt margin tracked by member companies of the Financial Industry Regulatory Authority has increased over the past two months. “We don’t know how much total leverage there is in the stock market, but margin lending indicates trends and we had another WTF moment,” says Wolf Richter, author of the Wolf Street blog.
“This rise in margin debt in recent months is another sign that the markets have gone crazy and everyone is chasing everything, whatever it is, be it a penny with a name similar to something [Tesla Chief Executive] Elon Musk mentioned in a tweet or if it’s Tesla’s TSLA,
own existence or any of the EVs [electric-vehicle] manufacturers or alleged manufacturers of electric vehicles that could never mass produce electric vehicles, or even an inherited automaker that now promotes its investments in electric vehicles, or whatever, including Bitcoin BTCUSD,
– which exploded more, before falling 28% in two weeks “.
As the chart shows, margin debt rises often precede significant stock market coatings.
The good news, for those investing in the market, is that stock market leverage is an accelerator. “When stocks already rise and investors feel safe, they borrow money to buy more shares and can borrow more against their shares because their value has increased. And that extra borrowed money chases the shares and therefore generates more buying pressure, and prices go up even more, ”writes Richter.
And the inevitable bad news: “Stock leverage is a downward accelerator, when stock prices are already falling and brokers are issuing margin calls to their clients who then have to sell shares to stay compliant, causing an attack Forced sales Many leveraged investors sell ahead of margin calls to avoid being forced to sell at the worst possible time. “
The buzz
Intel INTC,
fell 4% in premarket trading, after meeting 6% on Thursday, when it posted stronger-than-expected results about 10 minutes before the close of trading. Incoming chief executive Pat Gelsinger suggested that most of its manufacturing will remain internal, rather than relying on external smelting services. The chip maker said it released the report soon after it discovered a hack from its presentation of results.
IBM IBM,
shares fell 7%, after tech giant reported revenue declines for the 30th time in 34 quarters.
GOOG Alphabet,
Google threatened to shut down its search service in Australia for a bill that required it and the social networking platform Facebook FB,
pay publishers.
Incoming Biden administration officials have been downplaying expectations of controlling the COVID-19 pandemic with Jeff Zients, the head of the effort, saying, “What we are inheriting is far worse than we could have imagined.” The White House said President Joe Biden will sign executive orders to expand federal nutrition programs and clarify that workers can receive unemployment benefits while refusing to work in unsafe conditions.
The country furthest in its vaccination efforts, Israel, continues to struggle to control coronavirus cases. European listed airlines, including Ryanair Holdings RYAAY,
fell, after the Prime Minister of the United Kingdom, Boris Johnson, and the Minister of the Interior, Priti Patel, did not repeat the previous guarantees that the United Kingdom would return to normal in April, with the speculation that the country will begin to pay people with the virus to stay home.
The economic calendar includes existing home sales and flash readings of purchasing managers ’indices. These PMIs showed conditions in the eurozone and the UK that deteriorated in January.
The market
US stock futures ES00,
NQ00,
pointed to a sharply lower start, with the futures of the Dow Jones YM00 industrial average,
losing more than 200 points. Futures on crude oil CL.1,
and GC00,
also fell, while the performance of the TMUBMUSD10Y three years from the Treasury,
it was 1.09%.
The graph
A general rule is that VIX volatility,
it rises when stocks fall and it falls when stocks rise. However, this is clearly not the case now. Investment fund giant hedge fund Man Group says there are notable exceptions to the rule. “When the volatile sectors dominate the index, we get more cases of simultaneous increases in equity markets and volatility, especially during the technology bubble of the late 1990s. In fact, we see a similar composition of the S&P 500 today in day, ”they said.
The tweet
Take a look at this song “Hamilton” about Janet Yellen, nominated for Secretary of the Treasury. The full lyrics are here.
Random readings
Comedian Dave Chappelle contracted coronavirus, days after being seen with talk show host Joe Rogan, singer Grimes, and Musk, who previously had the virus.
Speaking of Musk, the latest launch of SpaceX is scheduled for 9:24 a.m. East, weather permitting.
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