5 Things We Learned This Week - 9/5/2020Submitted by Silverlight Asset Management, LLC on September 5th, 2020
September 5, 2020
Just as investors were feeling good about five consecutive months of steady gains, the stock market dealt a late-week reality check. Tech led the way down, with the Nasdaq recording its worst week since March. The S&P 500 ended the week -2.3% lower, the Dow fell -1.8% and the Nasdaq declined almost -4%.
European and Asian equity markets turned-in mixed results but fared relatively better. Bonds and the U.S. dollar were bid higher, as is typical when a risk-off breeze whips through the market.
We may be in the early phase of a market correction, which investors should try to view as normal and healthy. Even though corrections are almost always sudden (and scary), they’re also very common: the average intra-year drop for the S&P 500 is -13.4%.
Better Jobs Data Heading Into Labor Day Weekend
Non-farm payroll data released Friday beat expectations. Payrolls increased by 1.37 million, beating economist estimates for a gain of 1.35 million. The Labor Department says the unemployment rate also fell more than expected to 8.4%.
Bloomberg Economics take: “The expiration of the $600 top-up to unemployment benefits appears to have encouraged a number of Americans to seek employment. Many were able to land a new job or return to their previous place of employment. Uncertainty surrounding the next round of stimulus may draw even more people from the sidelines. Yet labor-market recovery is slowing well shy of the pre-pandemic peak, and well-targeted fiscal aid is still needed to sustain momentum in spending through year-end, and into 2021.”
Splitting Hairs Over Stock Splits
A frenzy erupted in the retail investor community on Monday as Apple and Tesla’s stock splits went into effect. Trading activity was so rampant that several online trading platforms experienced website outages.
Many investors view stock splits favorably. However, they are not a gift that doubles an investor’s ownership overnight. In a recent post, one of the foremost valuation experts in the world, Professor Aswath Damodaran, explained why stock splits are much ado about nothing, writing:
"A stock split is a change in share count, without altering ownership shares. If you are an Apple stockholder, for instance, after Apple's four for one stock split on August 31, you would own four times as many shares as you did on August 30, but so would everyone else in the company."
Why The Options Market Is Running Wild
In recent weeks, traders have noted unusual volume in the derivatives market. Specifically, there’s been a huge surge in call option buying, concentrated in the market’s largest stocks.
Who is behind it? It appears we learned the answer to that this week. Kudos to Zero Hedge for breaking the story:
One Day After Zero Hedge, FT “Unmasks” SoftBank As Call-Buying “Nasdaq Whale”
COVID-19: A Reason To Be Cautiously Optimistic
A new study published in the New England Journal of Medicine found that, “antiviral antibodies against SARS-CoV-2 did not decline within 4 months after diagnosis. We estimate that the risk of death from infection was 0.3% and that 44% of persons infected with SARS-CoV-2 in Iceland were not diagnosed by qPCR.”
This study provides more evidence of a relatively low death rate for COVID compared to past pandemics like the Spanish Flu.
When Democracy Gets Put Under A Microscope,
People See Different Things
According to Paul McCulley, a former managing director and chief economist at PIMCO and now a faculty member at Georgetown Law, the dual bull market in bonds and stocks is largely due to policy choices that started decades ago which established, in his words, a “monetary policy dominant world.”
If 60/40 Keeps Working, Democracy Has Failed, Paul McCulley Says
The debates about how well America’s economic policy reflects core democratic principles is likely just getting started, and has a range of investing implications for the years ahead.
Experience minus emotion equals wisdom. Actors Kevin Bacon and Kyra Sedgwick made a bad investment in Bernie Madoff. It could have cost them everything. Yet, they managed to dust themselves off, learn, and ultimately grow from the experience.
“We were both in shock at first,” Sedgwick said. “But then you do a really quick body scan to get some perspective—you have to; otherwise, you just freak out: our children were safe, we were still working, we could make the money back.”
People profiles the rest of their remarkable story here:
Kevin Bacon and Kyra Sedgwick Mark 32 Years of Marriage: How They Got Through a 'Scary' Time
Have a Wonderful Holiday Weekend!
This material is not intended to be relied upon as a forecast, research or investment advice. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by Silverlight Asset Management LLC to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Silverlight Asset Management LLC, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.