FAANGs aren’t what they used to be, so beware the bear market, says this hedge fund manager – MarketWatch | Omd Cialis

It was a rally. The S&P 500 SPX,
+1.42%
started the week at a seven-week high, bolstered by hopes for a less hawkish Fed and a sense that earnings pessimism was overdone.

The benchmark stock index is up 12.6% from its recent low in June and has posted its best July performance since 1939, according to Dow Jones Market Data. The 4.2% gain over the past week broke the resistance at 4,000 while continuing to move above its 50-day moving average. Etc.

But of course some are not convinced.

With the S&P 500 Relative Strength Index now at 74 and in “overbought” territory, bearish short-term traders should expect a slight pullback.

And Kevin Smith, chief investment officer at hedge fund Crescat Capital, believes the problems are bigger than just an overstretched pulse meter.

“Last week looked to us like a short seller capitulation for the market at large and for mega cap tech stocks in particular. Crescat is by no means capitulating. There have been many buy-the-news headlines that could mark the culmination of another bear market rally,” Smith said in a note to clients.

He cites three things he describes as genuinely bearish news over the past few days; the Fed’s 75 basis point rate hike; a consecutive negative push in real GDP; and “lousy” mega-cap tech earnings.

“Yeah, it was all really bad news, but short-term positioning was sidelined in anticipation of all this bad news, so there was a technical clear from short sellers,” says Smith.

Regarding the economy, investors are fooling themselves by pointing to a strong labor market as evidence of a soft landing as the Fed tightens policy.

“It’s sad how many people, including policymakers, seem unaware of the fact that labor markets are always a lagging indicator of economic downturns. With inflation so high today and the Fed so behind the curve, the current phase of negative real growth is likely to be very protracted and just beginning,” argues Smith.

And when it comes to big tech earnings, he’s particularly dismissive: “There’s been a massive slowdown in revenue, earnings, and free cash flow for all FAANG+ stocks that have been reported recently, and they’re all still highly valued… The truth is.” that these multiples are high Growth stocks traditionally perform poorly in an inflationary environment. Especially when adjusted for inflation, these stocks are hardly growing any more.”

FAANG stands for Facebook, Amazon AMZN,
+10.36%,
Apple AAPL,
+3.28%,
Neflix NFLX,
-0.50%
and Google (although the first and last are now listed as Meta META,
-1.01%
and alphabet GOOGL,
+1.84%
)

Source: Capital Crescat

Smith concludes that he is increasing his bearish bets because the FAANG+ results were not nearly as strong as the market interpreted. “We increased our short positions there in this recent short covering rally. We believe the bear market in equities will resume in earnest soon as the Fed is still in tightening mode and the yield curve is now heavily inverted.”

markets

US stock index futures are a bit softer after their recent strong run, with the S&P 500 Future ES00,
-0.13%
down 0.3% to 4,113. and the Nasdaq 100 NQ00,
-0.08%
future slide down 0.3% to 12,935. The dollar index DXY,
-0.33%
continues to retreat from recent 20-year highs and is down 0.4% at 105.47. The 10-year Treasury yield TMUBMUSD10Y,
2,653%
is up 2.1 basis points to 2.672%.

The Buzz

US Crude Oil Futures CL.1,
-1.86%
are down 2.2% to $98.04 a barrel after weak manufacturing surveys from China and Europe added to global growth fears.

Alibaba 9988,
-3.76%
Shares continued to slide in Hong Kong on Monday after US regulators last week put the e-commerce giant on a list of Chinese-owned companies that could be delisted.

US Wheat Futures W00,
-1.83%
holding nearly a five-month low after Ukraine was able to ship its first shipment of grain from Odessa since the Russian invasion.

At the result, Loews L,
+0.88%
releases results before market opens while Activision ATVI,
+0.55%
and Pinterest PINS,
+0.93%
Come after the closing bell.

US data on Monday: ISM manufacturing for July and construction spending, both due 10 am Eastern

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top ticker

Here were the most active stock tickers on MarketWatch as of 6 a.m. Eastern.

ticker

security name

TSLA,
+5.78%

Tesla

GME,
+0.50%

GameStop

AMC,
-0.14%

AMC entertainment

NEVER,
+1.23%

NEVER

AMZN,
+10.36%

Amazon

AAPL,
+3.28%

Apple

BABA,
-11.12%

Alibaba

GOVX,
+37.19%

GeoVax Labs

XELA,
+1.43%

Exela Technologies

NVDA,
+1.00%

Nvidia

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