It doesn’t take a scientist to discern that financial markets are full of juice right now, with the S&P 500 SPX,
which ends on Thursday at the fourth record of the young year and by 72% compared to the lows of March 2020. The last 12 weeks have seen the largest stock inflows ever, according to Bank of America.
Here’s another sign. The margin debt pursued by the member firms of the Financial Regulatory Authority has increased in the last two months. “We don’t know how much leverage there is on the stock market, but margin lending indicates trends and we’ve had another WTF moment,” says Wolf Richter, author of the Wolf Street blog.
“This increase in margin debt in recent months is another sign that the markets have gone crazy and everyone is watching everything, whatever it is, whether it’s a penny stock with a name similar to something [Tesla Chief Executive] Elon Musk mentioned in a tweet or if it’s about Tesla’s TSLA,
stock itself or any of the EVs [electric-vehicle] manufacturers or alleged manufacturers of electric vehicles that could not mass produce electric vehicles, or even an old car manufacturer that now intends to invest in electric vehicles or anything else, including Bitcoin BTCUSD,
– which exploded above, before falling by 28% in two weeks. ”
As the chart shows, increases in margin debt often precede major market failures.
The good news – for those investing in the market – is that the stock market lever is an accelerator. “When stocks are already rising and investors feel confident, they borrow money to buy more shares and can borrow more against their shares because their value has increased. And this extra borrowed money tracks the shares and thus creates more buying pressure, and prices continue to rise, ”writes Richter.
And the inevitable bad news: “The stock market lever is a downward accelerator, when stock prices are already falling and brokers are making margin calls to their clients who then have to sell shares to stay compliant, triggering a forced sell-off with many investors leverage sell before margin calls to avoid being forced to sell at the worst possible time. ”
Buzz
Intel INTC,
fell 4% in premarket trading, after gathering 6% on Thursday, when it released stronger-than-expected results about 10 minutes before trading closed. Pat Gelsinger, executive director, suggested that most of its production would remain in-house, instead of relying on external foundry services. The chip maker said it released the report early after discovering a hack of its results.
IBM IBM,
shares fell 7% after tech giant reported revenue fell for the 30th time in 34 quarters.
GOOG Alphabet,
Google has threatened to shut down its search service in Australia for a proposed law that would force it to use the Facebook FB social networking platform.
to pay publishers.
Coming Biden officials lowered expectations of controlling the COVID-19 pandemic with Jeff Zients, the head of the effort, saying, “What we inherit is far worse than we could have imagined.” The White House said President Joe Biden will sign executive orders extending federal nutrition programs and clarifies that workers can receive unemployment benefits while refusing to work in unsafe conditions.
The most distant country in its vaccination efforts, Israel, is still struggling to control coronavirus cases. Airlines listed in Europe, including Ryanair Holdings RYAAY,
fell after British Prime Minister Boris Johnson and Home Secretary Priti Patel did not repeat previous assurances that Britain would return to normal by April, with speculation that the country would start paying people with the virus to stay home.
The business calendar shows existing home sales and flash readings of purchasing managers’ indexes. Those PMIs showed conditions in the euro area and the UK deteriorating in January.
Market
US ES00 futures,
NQ00,
indicated a sharply lower start, with the future on the Dow Jones Industrial Average YM00,
losing more than 200 points. Crude oil futures CL.1,
and gold GC00,
also decreased while the yield on the 10-year Treasury TMUBMUSD10Y,
was 1.09%.
Chart
A general rule is that VIX volatility,
it is increased when stocks fall and that decreases when stocks rise. However, this is clearly not the case now. The investment institute of the hedge fund Man Group says there are notable exceptions to the rule. “When volatile sectors dominate the index, we get more cases of simultaneous growth in the stock markets and volatility, especially during the technological bubble of the late 1990s. Indeed, today we see a similar structure to the S&P 500, ”they said.
Tweet
See this song “Hamilton” about nominated for Treasury Secretary Janet Yellen. The full lyrics are here.
Random readings
Comedian Dave Chappelle contracted coronavirus a few days after he was seen with talk show host Joe Rogan, singer Grimes and Musk, who previously had the virus.
Speaking of Musk, the latest SpaceX launch is scheduled for 9:24 a.m. Eastern morning, weather permitting.
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