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Tech Slide Sends Stocks Lower

Tech shares are down for a second day on Tuesday in the face of higher interest rates after Fed Chair Jerome Powell’s prepared testimony to Congress said that inflation was “soft,”

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  • When You Buy A Stock, Here's How Much Cash The Company Actually Receives

    When you buy $1,000 of a company’s stock in your Robinhood account, how much of that cash goes directly to help fund the company and its business operations? The answer is $0. Where Your Cash Goes: The issue of buying shares of stock to help “save” struggling companies like GameStop Corp. (NYSE: GME) and AMC Entertainment Holdings Inc (NYSE: AMC) has come up frequently on social media since the WallStreetBets-fueled meme stock buying frenzy began in January. However, experienced investors know that publicly traded companies don’t get a dime from the cash you spend buying their shares of stock. Related Link: Kevin O'Leary Of 'Shark Tank,' Benzinga CEO Jason Raznick Talk GameStop, Bitcoin And Economic Recovery Trades Companies typically raise cash in the public market when they first go public via an initial public offering (IPO), a merger with a special acquisition company (SPAC) or a direct listing. However, once their shares are trading on the public market, any shares you buy in your brokerage account are coming directly from another shareholder who is selling, not the company itself. Aside from any trading fees you may spend on the transaction, every dollar you spend buying shares of GameStop, AMC or other stocks ends up in the brokerage account of the person or institution that sold them to you. AMC and GameStop traders on Reddit and Twitter have been celebrating their efforts to “save” these companies by buying shares of stock. In reality, the companies haven’t gotten any funds from any of the recent stock buying. How Public Companies Raise Funds: Once a company is public, it must raise capital via options such as a follow-on public offer (FPO), also known as a secondary offering. FPOs can be both dilutive or non-dilutive. A non-dilutive FPO happens when the founders or other large shareholders sell some of their shares to the public. An FPO may increase a stock’s float, or free-trading shares, but it does not increase the company’s outstanding shares or decrease its EPS. A dilutive FPO happens when a company creates new shares to sell to the public. By creating new shares, the ownership stakes of existing shareholders are decreased slightly the same way the value of a currency erodes when central banks print more money. Companies can also raise capital by borrowing money. However, the company must first find a lender that will agree on a reasonable interest rate. Many lenders don’t want to touch struggling companies like AMC and GameStop because they aren’t convinced they will be able to pay back their debts. What It Means For Meme Stocks: Despite all the publicity and wild volatility in GameStop, the company itself hasn’t actually been directly helped by all the retail buying. GameStop reportedly considered selling more shares during the January rally, but the SEC has said it would closely scrutinize any company that attempted to take advantage of the extreme trading volatility to knowingly sell overpriced shares to vulnerable investors. In June 2020, bankrupt Hertz Global Holdings Inc (OTC: HTZGQ) withdrew a proposed $500 million equity offering after the SEC cracked down on the company for potentially preying on investors. AMC, on the other hand, was able to raise $1.2 billion via debt and equity deals in January after its stock rallied more than 700%. “The irony here, of course, is that GME couldn’t even tap equity markets to take advantage of the recent short squeeze,” DataTrek Research co-founder Nicholas Colas said this week. He said the so-called “dumb money” flowing into the market may not be helping the companies directly, but it is certainly making short sellers think twice. “You don’t have to be long, but betting against people who think their 10-share buy order is going to change the world is both risky and not actually a fundamentally-based investment position,” Colas said. Benzinga’s Take: GameStop hasn’t been helped directly by all the retail stock buying, but investor enthusiasm and a higher stock price definitely help more than it hurts. If GameStop can now demonstrate its army of new investors and its massive amount of free publicity has translated into improved sales and earnings numbers, the company may have several funding options open up in the near future. GameStop reports fourth-quarter earnings in late March. Photo by Sharon McCutcheon on Unsplash. Latest Ratings for GME DateFirmActionFromTo Jan 2021B of A SecuritiesMaintainsUnderperform Jan 2021Telsey Advisory GroupDowngradesOutperformUnderperform Oct 2020JefferiesDowngradesBuyHold View More Analyst Ratings for GME View the Latest Analyst Ratings See more from BenzingaClick here for options trades from BenzingaWhy GameStop Stock Traders Should Beware The 'Law Of Twos And Threes'Kevin O'Leary Of 'Shark Tank,' Benzinga CEO Jason Raznick Talk GameStop, Bitcoin And Economic Recovery Trades© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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  • Billionaire Steven Cohen Picks Up These 3 “Strong Buy” Stocks

    Last week, the NASDAQ slipped below 13,200, making the net loss from its all-time peak, reached earlier this month, 6.4%. If this trend keeps up, the index will slip into correction territory, a loss of 10% from its peak. So what exactly is going on? At bottom, it’s mixed signals. The COVID-19 pandemic is starting to fade and the economy is starting to reopen – strong positives that should boost markets. But an economic restart brings with it inflationary pressures: more people working means more consumers with money in their pockets, and the massive stimulus bills passed in recent months – and the bill working through Congress now, which totals $1.9 trillion – have put additional funds in people’s wallets and liquidity into the economy. There is pent-up demand out there, and people with money to spend, and both factors will work to push up prices. We can see one effect of all of this in the bond market, where the ten-year Treasury bond is yielding 1.4%, near a one-year high, and it has been trending upwards in recent weeks. This may be a case of jumping the gun, however, as Federal Reserve Chair Jerome Powell has said in testimony before the Senate that he is not considering a move to boost interest rates. In other words, these are confusing times. For those feeling lost in all of the stock market fog, investing gurus can offer a sense of clarity. No one more so than billionaire Steven Cohen. Cohen’s investment firm, Point72 Asset Management, relies on a strategy that involves investments in the stock market as well as a more macro approach. This very strategy has cemented Cohen’s status as a highly respected investing powerhouse, with the guru earning $1.4 billion in 2020 thanks to a 16% gain in Point72′s main hedge fund. Bearing this in mind, our focus shifted to Point72's most recent 13F filing, which discloses the stocks the fund snapped up in the fourth quarter. Locking in on three tickers in particular, TipRanks’ database revealed that each has earned a “Strong Buy” analyst consensus and boasts significant upside potential. Array Technologies (ARRY) The first new position is in Array Technologies, a ‘green tech’ company providing tracking technology for large-scale solar energy projects. It’s not enough just to deploy enough photovoltaic solar collection panels to power an energy utility; the panels have to track the sun across the sky, and account for seasonal differences in its path. Array delivers solutions to these problems with its DuraTrack and SmarTrack products. Array boasts that its tracking systems will improve the lifetime efficiency of solar array projects, and that its SmarTrack system can boost energy production by 5% overall. The company clearly has impressed its customers, as it has installations in 30 countries, in more than 900 utility-scale projects. President Biden is expected to take executive actions to boost green economic policy at the expense of the fossil fuel industry, and Array could potentially benefit from this political environment. This company’s stock is new to the markets, having held its IPO in October of last year. The event was described as the ‘first big solar IPO’ in the US for 2020, and it was successful. Shares opened at $22, and closed the day at $36. The company sold 7 million shares, raising $154 million, while another 40.5 million shares were put on the market by Oaktree Capital. Oaktree is the investment manager that had held a majority stake in the company since 2016. Among Array's fans is Steven Cohen. Scooping up 531,589 shares in Q4, Point72's new ARRY position is worth over $19.7 million at current valuation. Guggenheim analyst Shahriar Pourreza also seems to be confident about the company's growth prospects, noting that the stock appears undervalued. “Renewable energy companies have seen a large inflow of capital as a result of the ‘blue wave’ and the Democrats’ control of the White House and both chambers of Congress; however, ARRY continues to trade a significant discount to peers," the 5-star analyst noted. Pourreza added, "We continue to be bullish on ARRY’s growth prospects driven by 1) tracker market share gains over fixed-tilt systems, 2) ARRY market share gains within the tracker industry, 3) ARRY’s large opportunity in the less-penetrated international market, 4) the opportunity to monetize their existing customer base over the longer-term through extended warranties, software upgrades, etc., which are highly margin accretive.” In line with these bullish comments, Pourreza rates ARRY shares a Buy, and his $59 price target implies a 59% upside from current levels. (To watch Pourreza’s track record, click here) New stocks in growth industries tend to attract notice from Wall Street’s pros, and Array has 8 reviews on record since it went public. Of these, 6 are Buys and 2 are Holds, making the consensus rating on the stock a Strong Buy. The average price target, at $53.75, suggests room for ~45% upside in the next 12 months. (See ARRY stock analysis on TipRanks) Paya Holdings (PAYA) The second Cohen pick we're looking at is Paya Holdings, a North American payment processing service. The company offers integrated payment solutions for B2B operations in the education, government, healthcare, non-profit, and utility sectors. Paya boasts over $30 billion in payments processed annually, for over 100,000 customers. In mid-October of last year, Paya completed its move to the public market via a SPAC (special acquisition company) merger with FinTech Acquisition Corporation III. Cohen is standing squarely with the bulls on this one. During Q4, Point72 snapped up 3,288,843 shares, bringing the size of the holding to 4,489,443 shares. After this 365% boost, the value of the position is now ~$54 million. Mark Palmer, 5-star analyst with BTIG, is impressed with Paya’s prospects into the mid-term, writing, “We expect PAYA to generate revenue growth in the high-teens during the next few years, with Integrated Solutions poised to grow in the mid-20s and Payment Services set to grow in the mid-single digits. At the same time, the company’s operating expenses should grow in the 5% context, in our view. As such, we believe PAYA’s adjusted EBITDA growth will be north of 20% during the next few years, and that its adjusted EBITDA margins will expand to 28% by YE21 from 25% in 2019.” Palmer puts an $18 price target on PAYA shares, indicating his confidence in 49% growth for the year ahead, and rates the shares as a Buy. (To watch Palmer’s track record, click here) PAYA’s Strong Buy analyst consensus rating is unanimous, based on 4 Buy-side reviews set in recent weeks. The shares have an average price target of $16, which suggests ~33% upside potential from the current share price of $12.06. (See PAYA stock analysis on TipRanks) Dicerna Pharma (DRNA) Last but not least is Dicerna Pharma, a clinical stage biotech company with a focus on the discovery, research and development of treatments based on its RNA interference (RNAi) technology platform. The company has 4 drug candidates in various stages of clinical trials and another 6 in pre-clinical studies. The company's pipeline clearly got Steven Cohen’s attention – to the tune of taking a new stake totaling 2.366 million shares. This holding is worth $63.8 million at current values. The drug candidate farthest along Dicerna’s pipeline is nedosiran (DCR-PHXC), which is being investigated as a treatment for PH, or primary hyperoxaluria – a group of several genetic disorders that cause life-threatening kidney disorders through overproduction of oxalate. Nedosiran inhibits the enzyme that causes this overproduction, and is in a Phase 3 trial. Top-line results are expected in mid-’21 and, if everything goes as planned, an NDA filing for nedosiran is anticipate near the end of 3Q21. Covering the stock for Leerink, analyst Mani Foroohar sees nedosiran as the key to the company’s near-term future. “We expect nedosiran could see approval in mid-2022, placing the drug roughly a year and a half behind competitor Oxlumo (ALNY, MP) in PH1... A successful outcome will transform DRNA into a commercial rare disease company in an attractive duopoly market with best-in-class breadth of label," Foroohar noted. To this end, Foroohar rates DRNA an Outperform (i.e. Buy), and his price target of $45 suggests a one-year upside potential of 66%. (To watch Foroohar’s track record, click here) All in all, Dicerna Pharma has 4 Buy reviews on record, making the Strong Buy unanimous. DRNA shares are trading for $26.98, and their $38 average price target puts the upside at ~41% over the next 12 months. (See DRNA stock analysis on TipRanks) To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights. Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

  • Judge Approves 'Landmark' $650 Million Class-Action Suit Against Facebook Over Privacy Claims

    A federal judge has approved a $650 million settlement of a class-action privacy lawsuit against Facebook that claimed the company used its facial recognition feature without user consent. What Happened: In 2015, Chicago attorney Jay Edelson filed a lawsuit against Facebook, Inc (NASDAQ: FB) in Cook County Circuit Court. According to the lawsuit, Facebook violated Illinois' Biometric Information Privacy Act, by failing to get consent before using facial-recognition technology, which scans photos uploaded by users to create and store faces digitally, The Verge has reported. Along with the settlement amount, the judge also ordered the 1.6 million members of the class-action lawsuit in Illinois to be paid “as expeditiously as possible.” Why It Matters: According to the order by Judge James Donato of the Northern District of California, the three named plaintiffs will each receive $5,000 and others in the class-action lawsuit will get at least $345 each, the report said. Donato described the settlement as a “landmark result” and said it "is one the largest settlements ever for a privacy violation." In a statement, Facebook said, “We are pleased to have reached a settlement so we can move past this matter, which is in the best interest of our community and our shareholders.” Facebook isn't the only company to run into the Illinois law. Sony Corp (NYSE: SNE) doesn't sell its robot dog, aibo, which has facial recognition technology, in the state because of the law. See more from BenzingaClick here for options trades from BenzingaThousands Of Bots May Have Played Role In GameStop Hype: ReportSEC Suspends Trading In 15 Stocks Over Social Media Concerns© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

  • No such thing as 'too much:' Warren Buffett quotes Mae West in defense of stock buybacks

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  • Warren Buffett In Annual Letter Signals More Stock Buybacks Coming This Year, Says Don't 'Bet Against America'

    Warren Buffett in his annual letter to shareholders offered words of encouragement to a battered country while also signaling that more stock buybacks are to come. Buffett's Annual Letter: The letter from the 90-year-old chief executive officer of Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) was even more anticipated than usual this year, because his influential voice has largely been silent since his last letter, which came in the very early days of the pandemic. A lot has happened since, from the contentious election and ensuing fallout, to the arrival of retailer investors pushing "stonks," not to mention the meteoric rise of Bitcoin (CRYPTO: BTC). Buffett's lieutenant, Berkshire Hathaway Vice Chairman Charlie Munger, spoke on Wednesday about some of these issues. He said the trading in stocks such as GameStop Corp. (NYSE: GME) was tantamount to "betting on racehorses" and cast doubt on the idea that Bitcoin will ever replace regular money as the world's primary medium of exchange. Buffett in his letter did not talk about cryptocurrency or GameStop, but he did touch on the turmoil of the past year, without directly referencing any particular event. He used the stories of companies throughout the country that he has invested in, such as GEICO and Pilot Travel Centers, to deliver a simple, clear message: "Never bet against America." (Italics in original.) "There has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country’s economic progress has been breathtaking," he wrote. "Beyond that, we retain our constitutional aspiration of becoming 'a more perfect union.' Progress on that front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so." Earnings, Stock Repurchases: As for the latest numbers on the company's performance, the letter showed Berkshire earned $42.5 billion last year, down 48% from 2019's $81.4 billion. This included an $11 billion loss from a write-down in subsidiary and affiliate businesses, particularly the 2016 purchase of Portland, Oregon-based metal fabricator Precision Castparts. The company does business in the aerospace industry — not the best one to be in last year. In his letter, Buffett said he overpaid for the company and that last year's "adverse developments" in the industry made that clear. "I was simply too optimistic about PCC’s normalized profit potential," Buffett wrote. The company spent $24.7 billion to repurchase the equivalent of 80,998 "A" shares last year, including $9 billion in the fourth quarter. That is likely to continue: "Berkshire has repurchased more shares since year-end and is likely to further reduce its share count in the future," Buffett wrote. Berkshire also as usual listed its top holdings by market value. They included Apple Inc (NASDAQ: AAPL), Coca-Cola Co (NYSE: KO), American Express Company (NYSE: AXP) and Bank of America Corp (NYSE: BAC). Filings from Berkshire earlier this month showed the company trimmed its positions in Apple while piling into drug, telecom and oil companies in the latest quarter. Recent Price Action: Berkshire's class B shares ended Friday at $240.51, down for the week at 0.54%. Class A shares were down 0.88% to $364,580. Photo Courtesy Wikimedia Commons. See more from BenzingaClick here for options trades from BenzingaBitcoin Hits Another All-Time High30,000 Macs Infected With Newly Detected Form Of Malware, Dubbed 'Silver Sparrow'© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

  • Buffett’s ‘Tone Deaf’ Annual Letter Skirts Major Controversies

    (Bloomberg) -- Warren Buffett’s 15-page annual letter to shareholders on Saturday made mention of the pandemic that ravaged the globe in 2020 exactly once: One of his furniture companies had to close for a time because of the virus, the billionaire noted on page nine.Buffett likewise steered clear of politics, despite the contested presidential election and riots at the U.S. Capitol, and never touched on race or inequality even after protests and unrest broke out in cities across the nation last year. He also avoided delving into the competitive deal-making pressures faced by his conglomerate, Berkshire Hathaway Inc., a topic routinely dissected in past year’s letters.“Here you have a company with such a revered leader who’s held in such high regard -- whose opinion matters, who has businesses that were directly impacted by the pandemic, insurance companies that were influenced by global warming and social inflation -- and there was not one word about the pandemic,” Cathy Seifert, an analyst at CFRA Research, said in a phone interview. “That to me was striking. It was tone deaf and it was disappointing.”Buffett, 90, has been unusually quiet since last year’s annual meeting in May amid a multitude of issues facing Americans. His annual letters are often seen as a chance to offer investors help in understanding his thinking on broad topics and market trends, in addition to details on how his conglomerate is faring.But the Berkshire chief executive officer carefully weighs his words, and some topics, such as the pandemic, risk veering into highly controversial political territory, Jim Shanahan, an analyst at Edward D. Jones & Co., said in an interview.“There’s been a lot of comments about the pandemic and the impact on the businesses, but by not saying something in the letter, I think it’s just a way to try and avoid saying something that could be perceived as a political statement, which he’s been less willing to do in recent years,” Shanahan said.A representative for Buffett didn’t immediately respond to a request for comment placed outside routine office hours.Buffett also stayed quiet on topics that are key to his conglomerate, such as the market environment amid a tumultuous year -- and the work of key investing deputies like Todd Combs and Ted Weschler, according to Cole Smead, whose Smead Capital Management oversees investments in Berkshire.“There’s more found by what’s not in the letter,” said Smead, the firm’s president and portfolio manager. “I think just time and time again in this letter were sins of omission.”Here are other key takeaways from Buffett’s letter and Berkshire’s annual report:1. Buffett Relies on Buybacks Instead of DealsBerkshire repurchased a record $24.7 billion of its own stock as Buffett struggled to find better ways to invest his enormous pile of cash.And there’s more where that came from: The conglomerate has continued to buy its own stock since the end of last year, and is likely to keep at it, Buffett said Saturday in his annual letter.“That action increased your ownership in all of Berkshire’s businesses by 5.2% without requiring you to so much as touch your wallet,” Buffett said in the letter, which pointed out that the company “made no sizable acquisitions” in 2020.Berkshire did make a small amount of progress in paring the cash pile, which fell 5% in the fourth quarter to $138.3 billion. Buffett has struggled to keep pace with the flow in recent years as Berkshire threw off cash faster than he could find higher-returning assets to snap up, leading to the surge in share repurchases.2. Apple Is as Valuable to Berkshire as BNSF RailroadBerkshire’s $120 billion investment in Apple Inc. stock has become so valuable that Buffett places it in the same category as the sprawling railroad business he spent a decade building.He began building a stake in the iPhone maker in 2016, and spent just $31.1 billion acquiring it all. The surge in value since then places it among the company’s top three assets, alongside his insurers and BNSF, the U.S. railroad purchase completed in 2010, according to the annual letter.“In certain respects, it’s his kind of business,” said James Armstrong, who manages assets including Berkshire shares as president of Henry H. Armstrong Associates. “It’s very much brand name, it’s global, it’s an absolutely addictive product.”Buffett had always balked at technology investments, saying he didn’t understand the companies well enough. But the rise of deputies including Combs and Weschler has brought Berkshire deep into the sector. In addition to Apple, the conglomerate has built up stakes in Amazon.com Inc., cloud-computing company Snowflake Inc., and Verizon Communications Inc.3. Buffett Concedes Error in $37.2 Billion DealBuffett admitted he made a mistake when he bought Precision Castparts Corp. five years ago for $37.2 billion.“I paid too much for the company,” the billionaire investor said Saturday in his annual letter. “No one misled me in any way -- I was simply too optimistic about PCC’s normalized profit potential.”Berkshire took an almost $11 billion writedown last year that was largely tied to Precision Castparts, the maker of equipment for aerospace and energy industries based in Portland, Oregon.The pandemic was the main culprit. Precision Castparts struggled as demand for flights plummeted, prompting airlines to park their jets and slash their schedules. Less flying means lower demand for replacement parts and new aircraft. Precision slashed its workforce by about 40% last year, according to Berkshire’s annual report.4. Profit Gains Thanks to Railroad, ManufacturersDespite the pandemic’s effects continuing to hit Berkshire’s collection of businesses, the conglomerate posted a near 14% gain in operating earnings in the fourth quarter compared to the same period a year earlier.That was helped by a record quarter for railroad BNSF since its 2010 purchase and one of the best quarters for the manufacturing operations since mid-2019.5. Good-bye Omaha, Hello Los AngelesBerkshire’s annual meeting has for years drawn throngs of Buffett fans to Omaha, Nebraska, where the conglomerate is based. This year, the show is moving to the West Coast.While still virtual because of the pandemic, the annual meeting will be filmed in Los Angeles, the company said Saturday.That will bring the event closer to the home of Buffett’s longtime business partner, Charlie Munger. Buffett and Munger will be joined by two key deputies, Greg Abel and Ajit Jain, who will also field questions.Buffett and Abel, who lives closer to Berkshire’s headquarters, last year faced “a dark arena, 18,000 empty seats and a camera” at the annual meeting, Buffett said in his letter. The 90-year-old billionaire said he expects to do an in-person meeting in 2022.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

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  • Cathie Wood’s Power in Some Stocks Is Even Bigger Than It Seems

    (Bloomberg) -- A rough week for Cathie Wood is reminding Wall Street that Ark Investment Management has a lot of cash in not that many companies. In fact, the firm’s dominance in some stocks may be even greater than it seems.Ark now owns more than 10% of at least 29 companies via its exchange-traded funds, up from 24 just two weeks ago, according to data compiled by Bloomberg.Less discussed are holdings of Nikko Asset Management, the Japanese firm with a minority stake in Ark that it has partnered with to advise on several funds.When combined, the pair own more than 25% of at least three businesses: Compugen Ltd., Organovo Holdings Inc. and Intellia Therapeutics Inc. Together they control 20% or more of an additional 10 companies.These concentrations would appear to exist because several Nikko products follow the investment blueprint provided by Ark. The company Wood founded in 2014 invests in disruptive themes like genomics and fintech -- and the Nikko products do, too.Because there are only so many stocks that fit these emerging themes and Wood has been so successful at attracting new cash, much of it floods into the same companies.“At arms-length, Ark provides non-discretionary investment advisory services to certain Nikko products, and Nikko is a distributor of Ark’s products,” a spokesperson for the U.S. firm said. Ark’s website identifies five of its strategies as being “available in Japan in partnership with Nikko Asset Management.”Ark and Nikko did not respond to requests for comment on the concentration risk.The high shareholdings aren’t necessarily a problem for either the fund managers or the companies, and the relationship between the two firms is clearly announced on both their websites. But such concentrated ownership stirs concern in some quarters about unintended consequences.“The biggest risk has everything to do with their footprint,” said Ben Johnson, Morningstar’s global director of ETF research. “Even treading lightly, they’re going to have some sort of market impact that is going to push prices against them.”In other words, fund outflows could have an outsized impact on the shares held by Ark and Nikko if they are forced to sell.There’s no sign of this yet. Three of Wood’s funds -- the flagship ARK Innovation ETF (ARKK), ARK Genomic Revolution ETF (ARKG) and the ARK Next Generation Internet ETF (ARKW) -- are on track for record outflows this week after rising yields and lofty valuations hit the tech sector, but there has been no obvious specific contagion. ARKK closed up 0.7% on Friday after a four-day slump, bringing its weekly loss to 14.6%.Wood has been using mega-cap stocks to soak up the pile of cash her firm received, which should help limit Ark’s impact in less-liquid names.Still, there are worries that these ownership concentrations are a risk for Ark and Nikko and their investors. A pullback in any of the heavily owned sectors could force them to reduce their stakes, which could trigger more declines and therefore more selling.“The concern would be performance slips, investors begin exiting the Ark funds and that would ultimately result in redemptions,” said Nate Geraci, president of the ETF Store, an advisory firm. “That could put further negative pressure on those securities and you create this negative feedback loop. This isn’t an issue for larger broad-based ETFs, but for ETFs that are more concentrated and own small-cap securities there absolutely could be some negative pressure there.”In general, companies heavily owned by Ark show higher-than-average short interest, though it’s impossible to say if that’s linked to worries about ownership or simply because they are riskier bets.The average short interest as a percentage of float for ARKK holdings is 4.4%, according to Bloomberg calculations based on data from IHS Markit Ltd. The average is 3.4% for Russell 3000 companies and 2.3% for those in the Russell 1000.The options market shows that bears haven’t jumped in quite yet, however. Of the 29 stocks that ARKK owns more than 10% of, only five have seen more puts than calls trade on average over the last five days. While put activity has increased broadly, the average put-to-call ratio stands at 0.7, a little more than half of what it is for Russell 3000 stocks.Perhaps that’s because wagering against Wood hasn’t worked out very well in the past. Almost every bet like that has lost money in the subsequent six months as prices rebounded, Bloomberg Intelligence analyst Eric Balchunas wrote in a note this week.“The fund’s outflows rarely last, and dips have tended to attract buyers in the past,” Balchunas wrote.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

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    The legislation, which just passed the U.S. House, includes several tax savers.

  • When Stocks Will Turn Up Again

    A painful week for investors … why John Jagerson and Wade Hansen don’t believe it will turn into something uglier … how much longer the weakness could last We shouldn’t be worried about traders reaping some profits right now. That’s how our technical experts, John Jagerson and Wade Hansen, began their Strategic Trader update from Wednesday. The reassurance is welcomed given the pain many investors felt this week. Some are concerned that the market is in the first stage of a full-blown correction.InvestorPlace - Stock Market News, Stock Advice & Trading Tips While that’s not off the table, John and Wade suggest it’s more likely that the recent weakness is business-as-usual — nothing more than the ebb and flow of a normal market. Today, let’s get into these details and find out why John’s and Wade’s bottom line is “although fluctuations like this can be frustrating for traders with a bullish bias, it looks very routine.” ***Normal healthy pullback or the beginning of significant collapse? For newer Digest readers, John and Wade combine options, insightful technical and fundamental analysis, and market history to trade the markets, whether they’re up, down, or sideways. While they consider long-term, macro market forces, what’s happening now is a primary focus of their analysis. After all, you wouldn’t want to put on a bullish trade if short-term indicators were pointing toward imminent weakness. Fortunately, John and Wade view this week’s selling pressure as nothing out-of-the-ordinary. From their Wednesday update: This week’s uptick in market volatility shows all the signs of profit-taking rather than a fundamentally negative shift in the market … The first clue that this volatility, which started last Tuesday, is profit-taking rather than a fundamental change in the market is that the hottest sectors and assets are experiencing the losses. At the same time, other groups remain defensive and bullish or neutral. To illustrate their point, John and Wade point toward the performance difference between high-flying small caps, bitcoin, and select hot market sectors, versus the S&P. … small caps that have exceeded most expectations over the last 12 months lost more than twice what the S&P 500 had lost by Tuesday morning. Extremely speculative assets like bitcoin, solar stocks, development-stage biotech and hot stocks like Tesla (TSLA) performed especially poorly over the last few days, which is completely normal after the run those assets had over the previous 12 months. ***It’s also interesting to see this performance differential if we compare the S&P Equal-Weight Index with Nasdaq 100 To make sure we’re all on the same page, the S&P 500 Index is comprised of a shade more than 500 of the largest companies in the United States. However, all of these companies don’t get equal representation in the index. That’s because the S&P is “weight-averaged.” In other words, the bigger the company, the more “representation” it has in the index. Given this, when we look at the S&P, we’re not viewing an accurate depiction of how its “average” stock is doing. But by looking at the S&P Equal-Weight Index, which, as its name implies, gives every stock the same representation, we get a far-clearer idea. Meanwhile, the Nasdaq 100 is a basket of the 100 largest, most actively traded U.S. stocks listed on the Nasdaq. It’s basically a “who’s who” of today’s top tech leaders, including Apple, Microsoft, Tesla, Amazon, Nvidia, and so on. Below, you can see that while the average Nasdaq-100-stock has fallen 4.1% on the week (as I write Friday early afternoon), the average equal-weight-S&P stock is down just 0.2%. That’s a major performance differential. By the way, for you astute readers who are wondering about the performance difference between the S&P 500 and S&P Equal-Weight, the S&P is down 1.5% — almost 8-times its equal-weight cousin. This reflects the added weight that tech-majors like Apple, Microsoft, and Tesla have in the S&P. ***What additional factors are John and Wade looking at that gives them confidence this weakness will blow over? The first is easy monetary policy from the Fed. Back to John and Wade: … long-term interest rates have been rising recently, but the Fed remains committed to its bond-buying program that should keep borrowing costs low. Fed Chair Jerome Powell told the Senate banking committee on Tuesday that “it is likely to take some time for substantial further progress to be achieved” for the economy to reach long-term growth and inflation targets. We feel that Powell’s comments came at the perfect time on Tuesday and were the primary factor that reversed the broad indexes and tech sector losses. The Fed’s program can’t last forever, but we don’t think a change is likely in the short term. For now, we don’t plan to recommend any changes to our strategy until the 10-year Treasury yield gets to 2%. Yesterday, the 10-Year yield climbed as high as 1.6%. As I write, it’s trading at 1.508%. While it might seem that’s a substantial ways from 2%, the explosive rate at which the 10-Year yield has risen since the summer tells a different story. Back in early August, the yield was at 0.5%. That means it has exploded 200% in less than seven months. Plus, the gains that are steepening. Below, you can see how the yield was at 1.01% just one month ago, yet has raced higher to today’s level of 1.508%. At this rate, the 10-Year yield could easily top 2% by late-March. This is definitely something to keep an eye on. ***John and Wade also point toward stimulus spending as supportive of more gains From their update: We know much of the news about the stimulus has recently been overshadowed by the fight to increase the minimum wage. In our view, if the fight in Congress is about an aspect of the stimulus bill (minimum wage) rather than the bill itself, then the likelihood for direct payments this quarter is a near certainty. We aren’t the only investors who feel that stimulus is likely to happen quickly. Selling the news of more direct payments could be one of the triggers for the recent volatility, but we think that is a temporary issue and will reverse shortly. As we stand today, the House is expected to pass Biden’s $1.9 trillion stimulus package today, after which it will go to the Senate. Though the package appears to have zero Republican support, Democrats could get it through the Senate through the process of “reconciliation,” which allows them to pass the legislation with a simple majority instead of the 60 votes usually needed to get past a potential filibuster in the Senate. ***Finally, John and Wade point toward earnings growth as a reason why the market will continue climbing, even if it’s volatile Back to their update: This earnings season has been very encouraging. So far, profits are up more than 3% among the S&P 500 on a year over year basis. This comparison is important because it shows that the first quarter of 2021 is doing better than the first quarter of 2020, which was mostly before pandemic hit spending numbers. To put things in perspective, on a year over year basis, profits declined more than 9% in the fourth quarter of 2020. However, there is an important caveat for this factor: Earnings are much lower than in 2019, and stock prices are a lot higher. This doesn’t mean stocks will fall, but it does increase the likelihood that volatility will remain high. As they near the end of their update, John and Wade include an interesting fact … Over the last two years, corrections have lasted an average of 27 calendar days (excluding the pandemic crash in March 2020). The vast majority last between 18-24 days. If you’re keeping track, the S&P topped out just 14 days ago. This suggests there could be room left in this current pullback, even though John and Wade don’t see it snowballing into a major correction. As we wrap up, I’ll give them the final word, which comes from their market update yesterday: Our bottom line right now is that the correction still appears to be driven by some temporary profit-taking that is within normal ranges. Adjustments like this are routine. If there is still some volatility to come, our expectations are that it will play out similarly to the profit-taking last September, which wound up working out very well in our favor. Have a good evening, Jeff RemsburgThe post When Stocks Will Turn Up Again appeared first on InvestorPlace.

  • Buffett’s Heading to LA in Rare Switch-Up for Annual Meeting

    (Bloomberg) -- Warren Buffett’s annual meeting normally draws thousands to his home in Omaha, Nebraska. This year, he’s taking the show to the West Coast.His Berkshire Hathaway Inc., which plans to hold the meeting virtually again this year, will film it from Los Angeles, near the home base of Buffett’s longtime business partner, Charlie Munger. Buffett and Munger will be joined by two key deputies, Greg Abel and Ajit Jain, who will also field questions.Berkshire had to scrap its plans for an in-person meeting last year as the pandemic swept the U.S. That meant Buffett and Abel, who lives closer to Berkshire’s headquarters, faced “a dark arena, 18,000 empty seats and a camera” last May instead of the sea of loyal shareholders that normally pack the place, Buffett said in his annual letter released Saturday. The 90-year-old billionaire said he expects to do an in-person meeting in 2022.“This year our meeting will be held in Los Angeles... and Charliewill be on stage with me offering answers and observations throughout the 3 1/2-hour question period,” Buffett said in the letter. “I missed him last year and, more important, you clearly missed him.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Gold is So Rip-Snortin’ Cheap!

    Ok, we admit it with respect to last week’s piece “Gold’s Near-Term Brush with the 1600s”: we were a bit dubious about the 1600s potentially getting teased. To be sure as a broad-term 2Gold bull, penning negatively about price hardly is pleasant. But we’re guided by what the numbers are and as to what then generally occurs when said numbers are what they are.

  • Traders on Yield Watch in Bond Markets ‘Not for Faint-Hearted’

    (Bloomberg) -- After last week’s market turmoil, there’s really just one question on traders’ minds: how central banks will react to the jump in bond yields.The manner in which markets anticipate the likely policy response will be key to determining risk appetite Monday following a week in which 10-year Treasury yields, a benchmark for global borrowing costs, surged to almost triple their levels of August. The move underscored how investors are starting to fret about an acceleration in inflation that might prompt the Federal Reserve and other central banks to tighten policy sooner than expected. The S&P 500 had its first back-to-back weekly decline since October, while implied volatility in Group-of-Seven currencies rose the most since June.“We are moving to a type of market condition that’s not for the faint-hearted,” said Nader Naeimi, the head of dynamic markets at AMP Capital Investors in Sydney, adding that he will continue betting against Treasuries. “The focus right now is the Fed and central banks. If they sound alarmed about the recent back-up in bond yields, then the curves will likely start flattening.”As trading go underway Monday morning, yields on Australia’s 10-year government bonds slumped 19 basis points to 1.73%. Yield’s on the three-year benchmark eased half a basis point to 0.11%, versus the central bank’s target of 0.1%. In New Zealand, 10-year yields slipped 5 basis points.The Reserve Bank of Australia waded in with A$3 billion ($2.3 billion) of unscheduled bond purchases last week in an effort to calm markets. Governor Philip Lowe may signal policy makers’ resolve to restrain borrowing costs at a policy meeting Tuesday. The country’s 10-year note yield climbed around 50 basis points in the week through Friday.For all the recent whiplash in bond markets though, Friday provided some respite amid some month-end buying and attempts by policy makers to soothe markets. European Central Bank Executive Board member Isabel Schnabel said more stimulus could be added if the surge in yields hurts growth, while Fed Chair Jerome Powell called the run-up in yields “a statement of confidence” in the economic outlook.The 10-year Treasury yield ended the week at 1.40%. It had surpassed 1.60% at one point on Thursday.Still, investors will be looking for more reassurance in coming days as Powell delivers what are likely his final public comments before a mid-month policy meeting. A string of other officials are also scheduled to speak.More VolatilityThe volatility in Treasuries is “more than likely” to carry onto this week, said Marc Ostwald, chief economist and global strategist at ADM Investor Services in London. “Markets are still in the mood to challenge the Fed view of running everything hot.”Mansoor Mohi-uddin, chief economist at Bank of Singapore Ltd., expects central bank officials to express more concern about the move in yields in coming days because tighter financial conditions may hurt the U.S. recovery.“We expect the Fed to stop observing that surging yields are benign, for example by signaling it may delay tapering if bond markets remain volatile,” he said. “A shift in tone by the Fed would help stop 10-year Treasury yields rising further towards 2% in the next few months and instead stay at very low levels still to the benefit of risk assets.”(Updates with opening of trading in Australia)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Thousands Of Bots May Have Played Role In GameStop Hype: Report

    Bots have been hyping GameStop Corp (NYSE: GME) and other so-called meme stocks across social media platforms, Reuters has reported. What Happened: According to Massachusetts-based cybersecurity company PiiQ Media, some organized or foreign actors may have played role in hyping these stocks, which have soared and crashed — and sometimes soared again — this year. The firm studied posts on Twitter, Facebook, Instagram and YouTube, and found that bots used the platforms to push GameStop and other meme stocks. However, it was unclear if the bots’ posts were influential or not, Reuters noted, and the company did not study Reddit, where the excitement over GameStop and other stocks was centered. According to the analysis, there are tens of thousands of such bot accounts used to hype stocks, as well as the cryptocurrency Dogecoin (CRYPTO: DOGE), on social media platforms. The U.S. Securities and Exchange Commission is investigating the market volatility surrounding meme stocks and on Friday suspended trading in 15 companies, citing questionable trading and social media activity. Why It Matters: The volatility could have lasting effects on the regulation of markets. The frenzy in January grabbed international headlines and even led to a congressional hearing in the U.S. last week. The volatility in the markets alarmed politicians on the left who renewed calls to tax stock transactions. The situation also put the practice of "payment for order flow" under the spotlight both on and off Wall Street. Payment for order flow is what has enabled platforms, led by Robinhood, to allow commission-free stock trading — a primary factor behind the influx of retail traders into the markets over the past year.‪ Photo courtesy Pixabay. See more from BenzingaClick here for options trades from BenzingaSEC Suspends Trading In 15 Stocks Over Social Media ConcernsRobinhood Planning Confidential IPO As Early As March: Report (UPDATE)© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.