Stocks fell on Tuesday after starting the day deep in the red following an overnight sell-off before markets reversed a bit during the US trading session.
First, the scoreboard:
Dow: 17,750.9, -140.3, (-0.8%) S&P 500: 2,063.4, -18.1, (-0.9%) Nasdaq: 4,763.2, -54.4, (-1.1%) WTI crude oil: $43.60, -2.5%
In a report out on Tuesday, Bank of America Merrill Lynch revealed that its institutional investors – which include things like mutual funds, pension funds, and endowments – pulled $2.8 billion from the stock market last week.
This marked the 14th-straight week that BAML’s institutional clients were net sellers of stocks, the longest streak in the firm’s data’s history going back to 2008.
During this period stocks have been drifting higher after making a huge comeback from the early-year sell-off that sent US stocks into a correction, defined as a 10% decline from recent highs.
Over the last basically two years, stocks, on balance, have gone nowhere. And the longer they go nowhere the more we’re likely to see investors get nervous and hope to bail before things get really bad.
Hence the kind of churn we’re looking at on a seemingly daily basis.
Auto sales rebounded in April after a decline in March raised concerns over the health of the US consumer.
According to Autodata, US vehicle sales in April hit an annualized rate of 17.4 million, roughly the same as February and in-line with expectations from economists based on data from Bloomberg.
In March, the pace of auto sales fell to 16.46 million.
Ahead of Tuesday’s report, Ian Shepherdson at Pantheon Macro had said that a rebound was likely given that consumers still appear to have the cash on hand to keep buying cars. This played out. And so while the economy may not yet be showing signs of real weakness, auto sales are more and more looking like an area that will be viewed as a potential flash-point at which the first cracks in the economy might show.
Elsewhere in the US economy, Monday saw the release of the latest Senior Loan Officers Opinion Survey, or SLOOS report, from the Federal Reserve, and all indications are that credit conditions in the US are getting tighter.
But despite loan officers pointing to tighter financing conditions, Bespoke Investment Group noted in a research report out Monday that credit expansion is still ripping higher, with commercial and industrial loans growing on US corporate balance sheets at an annualized pace of 19.3% at last check.
“The bottom line is that based on bank lending statistics only, there is no reason to think that credit taps are being turned off either to households or the broad commercial economy,” the firm wrote.
Which on the one hand is sort of benign: CEOs go on Cramer’s show almost every day.
On the other hand: why is the CEO of the world’s most valuable company going on financial TV to defend his company to shareholders?
Cook, as you’d expect, pointed to the amount of absolute revenue and profit the company raked in last quarter, which at about $50 billion and $10 billion, respectively, is incredible.
But stock markets and stock market investors are forward looking. And there is, right now, simply no confidence in or from the market that Apple’s best days aren’t behind it. The amount of iPhones being sold every quarter really is staggering, and at least in the US it is the smartphone standard. But the company’s next leg of growth was (is?!) supposed to come from China and India.
This is not going as well as the company would hope.
Of course, everything can’t just be perfect off the bat. Growing pains are to be expected. But the question about whether Apple is “over the hill” is not going to escape Cook, no matter how many TV appearances he makes.
Twitter, speaking of best days, fell to a new all-time low Tuesday morning.
Steve Cohen thinks the talent coming into hedge funds right now stinks.
“Frankly, I’m blown away by the lack of talent,” Cohen said Monday in an appearance at the Milken Institute Global Conference. “It’s not easy to find great people. We whittle down the funnel to maybe 2 to 4 percent of the candidates we’re interested in. Talent is really thin.”
Josh Brown thinks Cohen has this a little bit backwards: perhaps there is too much talent and thus returns are harder to come by for the talented many that get into the field. And if the field compensates you mostly as a percent of money you have under management – and not how well you do – well then of course you’d want to get into the field.
But the recent pushback against hedge funds is not only their fees and underwhelming performance but those two things coming in the same package. I’m not sure what to make of it, either way.
What did strike me is that Josh’s point more or less substantiates the idea we wrote about on Monday when looking at what happens in markets when more participants index: they get more efficient.
In this argument, markets get more efficient because more investors are able to get the average market return for less money. This then makes investors less reliant on hedge-fund-types investors who are supposed to possess some kind of talent for investing that makes paying their fees worth it. Basically: these folks are supposed to generate alpha.
But if more and more people get the market return, and more and more hedge funders are pressured by this competition – and if we acknowledge that the average return for the active management field can’t be better than the average return for that field’s benchmark – well, then you have what we’ve had: a long period of underwhelming performance from the hedge fund industry.
Cohen’s argument also speaks to the rise of indexed money in that his perceived lack of talent is really just, again, the ruthless efficiency of more passively-managed markets making what were anomalous returns for active-style hedge fund-type investments obsolete.
In a sense, then, the whole rise of the industry had nothing to do with talent but was merely a quirk in the investing world that is being worked out.
So everybody sort of wins, and everybody also sort of loses.