FAANGs aren’t what they used to be, so watch out for bear market rebounds says hedge fund manager

It’s been a bit of a rally. The S&P 500 SPX
he is starting the week at a seven-week high, buoyed by hopes for a less aggressive Fed and a sense that earnings pessimism was exaggerated.

The benchmark equity index rose 12.6% from its recent June low, having achieved its best July performance since 1939, according to Dow Jones Market Data. Last week’s 4.2% pop broke through the 4,000 resistance, moving further above its 50-day moving average in the process. And so on.

But, of course, some are not convinced.

With the relative strength index of the S&P 500 now at 74 and in “overbought” territory, short-term bearish traders might expect some retreat.

And Kevin Smith, chief investment officer at hedge fund Crescat Capital, thinks the problems are bigger than an overly extended momentum indicator.

“Last week it felt like a capitulation of the short sellers for the market in general and especially for the tech mega-cap stocks. Crescat does not capitulate at all. There have been many “buy the news” headlines that could spike another bear market rally, “Smith said in a note to clients.

He cites three elements of what he calls truly bearish news in recent days; the Fed’s 75 basis point interest rate hike; a consecutive negative real GDP print; and “lousy” earnings from mega-cap technology.

“Yes, it was all really bad news, but the near-term positioning was offside in the expectation of all this bad news, so there was a technical jolt from short sellers,” Smith calculates.

As for the economy, investors are deceiving themselves if they point to a strong job market as evidence of a soft landing as the Fed tightens policy.

“It is sad how many people, including policy makers, appear unaware that labor markets are always a lagging indicator of economic downturns. Because inflation is so high today and the Fed is so behind the curve, the current period of negative real growth is likely to be very protracted and has just begun, ”says Smith.

And about big tech gains he’s particularly dismissive: “There has been a massive deceleration in revenues, earnings and free cash flow of all the FAANG + stocks they recently reported, and they are all still highly regarded … The truth is that the high multiple, growth stocks traditionally do poorly in an inflationary environment. These stocks are not even growing anymore, especially based on inflation. “

FAANG stands for Facebook, Amazon AMZN,
Apple AAPL,
Neflix NFLX
and Google (although the former and the latter are now listed as Meta META
and GOOGL of the alphabet

Source: Crescat Capital

Smith concludes that because the FAANG + results have not been as strong as the market has interpreted, he is adding to his bearish bets. “We have increased our shorts in this recent short hedging rally. We believe the equity bear market will get back in earnest soon with the Fed still in tight mode and the yield curve now well reversed. “


US stock index futures are slightly weaker after their recent strong run, with the S&P 500 future ES00
down 0.3% to 4,113. and the Nasdaq 100 NQ00
the future slips 0.3% to 12,935. The DXY dollar index
it is retreating further from the recent highs of the past 20 years, down 0.4% to 105.47. The 10-year Treasury yield BX: TMUBMUSD10Y
it was up 2.1 basis points to 2.672%.

The buzz

US crude oil futures CL
they are down 2.2% to $ 98.04 a barrel after China and Europe’s weak production polls added to global growth fears.

Alibaba Hong Kong: 9988
Shares dipped further in Hong Kong on Monday after US regulators last week added the e-commerce giant to a list of Chinese-owned companies that could be canceled.

US Wheat Future W00
they have been holding lows for five months after Ukraine was able to send its first shipment of grain from Odessa since the invasion of Russia.

In earnings, Loews L
publishes results before market opening while Activision ATVI
and Pinterest PIN
come after the closing bell.

US Economic Data Monday: ISM Production for July and Construction Spending, both expected at 10am Eastern

The best of the web

The silent collapse of venture capital: when the tech boom met reality.

You’d be stupid not to evaluate the risk.

The war in Ukraine seen from China.

The graph

If you’ve wondered why the Senate Democrats’ new fiscal and climate package was dubbed the “2022 Inflation Reduction Act,” then this chart might explain.

The best tickers

Here are the most active stock market tickers on MarketWatch at 6:00 am Eastern.

Random reads

Lionesses roar.

Jetson technical review.

What goes on….

Need to Know starts early and is updated until the opening bell, but sign up here to get it once in your inbox. The e-mailed version will be sent around 7:30 am Eastern


Leave a Reply

%d bloggers like this: