The stock market's four-week winning streak came to an end, in reaction to an overbought market that was due for a pullback. After Wall Street's impressive recent rally and with central bank tightening in the pipeline, traders saw an opportunity to trim back positions. Friday’s drop followed earlier minutes from the Federal Reserve’s July meeting and comments from St. Louis Federal Reserve President James Bullard that indicated the Fed likely would continue hiking rates in the near term, dampening investor hopes for a less aggressive stance. Germany's hotter than expected reading on producer prices renewed inflation concerns and helped lift the U.S. Treasury market, including the 10-year yield, which jumped 11 basis points Friday and 14 basis points for the week to 2.99%. For the week, the S&P 500 fell 1.2% and the Dow Jones average ticked 0.2% lower while the Nasdaq Composite slid 2.6%.
Growth stocks were among the favorites for hedge fund whales in the second quarter. Monday was the deadline for hedge funds with more than $100M in assets under management, as well as other institutional investors and endowments, to report certain stock holdings through 13F filings. The 13F season gives investors a glimpse into where the big players are betting, albeit with dated information.
A number of hedge funds and money managers looked to pick up beaten-down growth stocks, such as tech, in Q2. From April to June, the Nasdaq 100 (NDX) (QQQ) fell more than 22%, while the S&P 500 (SP500) (SPY) was down about 16.5%.
Who's buying what?: Among the big-name disclosures, Warren Buffett's Berkshire-Hathaway (BRK.A) (BRK.B) boosted its stake in Activision (ATVI) to ~68.4M shares from 64.3M. It also exited its stake in Verizon (VZ).
Soros Fund Management made a new investment in Tesla (TSLA) (~29.9K shares) and disposed of its stakes in MGM Resorts (MGM) and Solid Power (SLDP).
David Tepper's Appaloosa took new positions in Salesforce (CRM), buying 200K shares, Alibaba (BABA), acquiring 100K shares, and Netflix (NFLX), with 50K shares, during Q2.
In addition, Elliott Investment Management started a stake in Pinterest (PINS) and shed Twitter (TWTR), Ray Dalio's Bridgewater started positions in Rivian (RIVN) and Amazon (AMZN), the Gates Foundation turned to autos with Vroom (VRM) and Carvana (CVNA), and Carl Icahn eyed Bausch + Lomb (BLCO).
Dan Loeb takes aim at Disney: It wouldn't be 13F season without some hedge fund saber rattling. Dan Loeb's Third Point Capital revealed a new stake of 1M shares in Disney (DIS) in its filing, but added in a letter directly to the company that in recent weeks it had “repurchased a significant stake.”
Third Point lobbied for a refresh of the Disney board, made its case for an ESPN spinoff and also asked the FTC for permission to engage directly with the company.
Disney defended the composition of its board and noted that members have an average tenure of just four years.
This week's housing data did much to confirm a slowdown sought by the Federal Reserve. Along with what may have been peak inflation last week, cooler housing data is another piece in the puzzle as the FOMC tightens conditions. The outlier remains the labor market, where jobless claims dropped this week and payroll growth remains strong.
By the numbers: the August NAHB measure of homebuilder confidence fell below 50 for the first time since May 2020. Housing starts for July dropped 9.6%, more than expected, (although permits dropped less than forecast). And most recently the NAR reported that July existing home sales fell 5.9%, more than anticipated.
"Existing home sales have now fallen for six months in a row, and are 26% lower than the January peak," Pantheon Macro Economist Ian Shepherdson said. "But the bottom is still some way off, given the degree to which demand has been crushed by rising rates; the required monthly mortgage payment for a new purchaser of an existing single-family home is no longer rising, but it was still up by 51% year-over-year in July."
"To make matters worse, the market is now grappling with rapidly rising supply as well as crumbling demand," he added. "Our measure of seasonally adjusted existing single-family homes for sale rose 6% in July, but it has a long way to go before it reaches pre-Covid levels."
"Home sales likely have further to fall," Odeta Kushi, deputy chief economist at First American Financial, tweeted. "Mortgage applications so far in August point to another decline in existing-home sales. This month's number of 4.81 million puts us at about 2014 sales level." (See chart at bottom.)
Fed reaction: The market predictions for the Fed's move next month have been volatile through the week and there is still Jackson Hole coming next week. But while chatter from members remains hawkish, after all the housing figures expectations are back to a 65% chance of 50-basis-point hike over 75.
"Fed officials pay particularly close attention to the housing market and are monitoring how higher mortgage rates are impacting home sales and housing prices in order to gauge how tighter monetary policy is affecting the broader economy," Wells Fargo economists wrote.
In the July FOMC minutes just released, members said housing activity “had slowed notably."
"We agree with the Fed's assessment that home sales likely have further to fall," Wells Fargo said. "As of August 12, mortgage applications for purchase have declined on a week-to-week basis in seven of the previous eight weeks."
Retail resilience? While housing is struggling there were also signs for some optimism. Results from Home Depot (HD) and Lowe's (LOW) showed that the home improvement consumer is "holding up quite well," according to Oppenheimer analyst Brian Nagel.
"The single most startling number in the July retail sales report was the 1.5% jump in the building materials component, the best performance in the sector since January," Pantheon's Shepherdson said. "But don’t be fooled; this is noise, not signal. The monthly data are erratic, but the trend is clear."
"In short, the worst is yet to come for housing-sensitive retailers," he said. "Their sales will fall even as other retailers and providers of domestic services benefit from the rebound in discretionary incomes now underway as gas prices drop and payrolls continue to rise rapidly."
Elon Musk stirred up soccer fans and investors when he tweeted that he was buying Manchester United (MANU). Four-and-a-half hours later he said that he was joking.
"Also, I’m buying Manchester United ur welcome," Musk replied in a thread. "No, this is a long-running joke on Twitter. I’m not buying any sports teams," he replied later. "Although, if it were any team, it would be Man U. They were my fav team as a kid."
But Musk's tweet kicked off a sudden flurry of activity in shares of the famed but beleagured soccer team as the unpopular (with fans) Glazer family indicated for the first time they would be open to selling a minority stake.
The Glazers have faced resistance from fans since the late Malcolm Glazer bought the team in a 2005 leveraged buyout, pressure that intensified after coach Sir Alex Ferguson's retirement in 2013, leading to a lull in the team's success - and growing protests against ownership.
Shares rallied further amid reports that one of Britain's richest men is interested in a piece of the club action. Billionaire Sir Jim Ratcliffe, founder of Ineos Group, is "definitely a potential buyer," a spokesman says according to The Times. Ratcliffe usually looks for full control of businesses he buys into, but would consider the minority investment that the Glazers are seeking. “If something like this was possible, we would be interested in talking with a view to long-term ownership," Ratcliffe's spokesman said, adding that fresh investment into Man United could help upgrade infrastructure where it's badly needed, such as the team's Old Trafford stadium.
Later reports said that MANU had entered discussions with Apollo Global Management (APO) over the investment. Any such deal wouldn't be wrapped up until next month at the earliest.
China lowered two key lending rates and injected more cash into its economy Monday as it looks to keep stimulating the economy. The country remains the global monetary policy outlier, with the rest of the major economies tightening in an effort to tame inflation.
The People's Bank of China cut its one-year lending facility rate by 10 basis points to 2.75% and cut the seven-day lending rate the same amount to 2%. The PBOC added 2 billion yuan through seven-day reverse repos.
Economists had expected the seven-year rate to stay steady. But policymakers are still clearly worried that risks are to the downside with strict COVID policies and weakness in housing, even though plenty of liquidity is stoking inflation pressures.
Later in the day, the government reported a batch of mostly disappointing economic data.
China July Industrial Production rose 3.8% y/y (vs. 4.6% expected) and slightly lower than the 3.9% figure reported in June. Retail sales increased 2.7% in July compared with the same period in 2021, below the 5% forecast. In addition, China's jobless rate for 16-to-24-year-olds hit 19.9%, the highest ever recorded. And new house prices were down 0.9% y/y (vs. down 0.5% prior).
Rebound still seen: Still, the "question is no longer whether we get a rebound (in the Chinese economy), but how much of one," Morgan Stanley Economist Seth Carpenter wrote in a note. "Covid-zero policies are slowly easing and we think more relaxation will follow the Party Congress in October," Carpenter said. "But will freedom of mobility be enough to reverse the challenges of the housing market? Recent policy action to address the housing crisis will help, but I fully expect that a much larger package will be needed. Ultimately consumer and property confidence will need to make a rapid recovery if the rebound can take shape," he added.
Apple (AAPL) is reportedly looking at holding its annual fall product event, including the announcement of its iPhone 14 product line, on Sept. 7.
The iPhone 14 lineup may include four models, including a Pro and Pro Max, which some analysts expect will both receive a $100 price increase over last year's iPhone 13 Pro and Pro Max models. The event is likely to see the unveiling of three Apple Watch models and perhaps new Macs and iPads as well. Bloomberg also reported that the new Apple products could reach stores on Sept. 16.
Supply chain optimism: Separately on Wednesday, investment firm Wedbush Securities said Apple was seeing a "further slight improvement" in its supply chain.
Analyst Dan Ives, who has an Outperform rating on Apple, boosted his price target on the company's stock to $220 a share from $200. Ives noted that the initial order of 90M iPhone 14 units has "stayed firm", and despite the weakening economic conditions, strong demand is still there for Apple products. Credit Suisse upgraded Apple to Outperform on Tuesday, citing the company's massive user base of almost 2B installed devices.
Dow -0.2% to 33,707. S&P 500 -1.2% to 4,228. Nasdaq -2.6% to 12,705. Russell 2000 -2.9% to 1,957. CBOE Volatility Index +5.5% to 20.6.
S&P 500 Sectors
Consumer Staples +2.5%. Utilities +2.2%. Financials -0.1%. Telecom -1.3%. Healthcare +0.7%. Industrials +0.1%. Information Technology +0.3%. Materials -0.9%. Energy +1.8%. Consumer Discretionary -0.1%.
London +0.7% to 7,550. France -0.9% to 6,496. Germany -1.8% to 13,545. Japan +1.3% to 28,930. China -0.6% to 3,258. Hong Kong -2.% to 19,773. India +0.3% to 59,646.
Commodities and Bonds
Crude Oil WTI -2.3% to $89.97/bbl. Gold -3.% to $1,760.3/oz. Natural Gas +5.8% to 9.28. Ten-Year Bond Yield -0.2 bps to 2.976.
Forex and Cryptos
EUR/USD -2.15%. USD/JPY +2.58%. GBP/USD -2.46%. Bitcoin -13.7%. Litecoin -14.4%. Ethereum -18.%. XRP -10.3%.
Top S&P 500 Gainers
Occidental Petroleum Corporation (OXY) +8%. Coterra Energy Inc. (CTRA) +6%. The Kroger Co. (KR) +5%. Eli Lilly and Company (LLY) +5%. The Progressive Corporation (PGR) +5%.
Top S&P 500 Losers
Moderna, Inc. (MRNA) -15%. Etsy, Inc. (ETSY) -11%. SolarEdge Technologies, Inc. (SEDG) -9%. Caesars Entertainment, Inc. (CZR) -9%. Match Group, Inc. (MTCH) -9%.
Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.
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