Dow Jones: 32,997 (-3.12%)
S&P 500: 4,146 (-3.56%)
Nasdaq: 12,317 (-4.99%)
Russell 2000: 1,863 (-4.15%)
Bitcoin: $36,277 (-8.85%)
Ethereum: $2,727 (-7.55%)
Holy $%!&… That was ugly.
Investors fell asleep in a dream and woke up in a nightmare as stocks completely reversed yesterday’s strong gains in what was undoubtedly the worst day for stocks in 2022.
Markets: The Dow and Nasdaq recorded their worst single-day drops since 2020, and the S&P just had its second-worst day of the year.
Max Pain: Big tech stocks like Meta (-6.8%), Amazon (7.6%), and Apple (-5.6%) were under a ton of pressure as the 10-year Treasury yield regained the 3% level. Tesla fell 8.3%. E-commerce stocks also weighed heavily on the market — more on that later.
But the sell-off was extremely broad. More than 80% of S&P 500 stocks declined on the day — even recent outperformers like Coca-Cola, Chevron, and Duke Energy.
The Crypto Crash: Bitcoin fell nearly 9% today, its most in 2 months, as stocks sold off. Avalanche led the crypto market in losses, however, falling 13.51% over the past 24 hours.
$HB Stock: Despite the sell-off, the Hungry Bull is still pumping out content! If you like the newsletter, be sure to share with a friend who needs to stop nagging you for financial advice!
Now, for the top stories of the day…
Source: Heat Map & Sector Performance — Finviz.com
Elon Musk and Cathie Wood Say This is a HUGE Problem
Musk and Wood don’t always join forces, but when they do, their combined voices have a lot of power. So, we listen (and then report right back to you guys).
The two retail-investor superstars took to Twitter to address concerns they have over something that many in the YouTube finance community have been promoting for years now (Graham Stephan included): the almighty index fund.
We all know the pitch: You invest your money passively in index funds, never sell, and retire a millionaire without ever having to worry about the day-to-day fluctuations in individual stock prices… But how many people actually follow this advice?
- Well, passive investments have taken up about 60% of the equities market, according to JPMorgan estimates.
- The market for index funds is nearly $6 trillion, and the market for ETFs is up to $5 trillion.
But what’s the issue? Just a few months before he passed away, John Bogle (the founder of Vanguard and father of the index fund) warned that things could go awry if passive funds continue to grow larger.
- “If historical trends continue, a handful of giant institutional investors will one day hold voting control of virtually every large U.S. corporation,” Bogle wrote. “Public policy cannot ignore this growing dominance, and consider its impact on the financial markets, corporate governance, and regulation.”
Musk Weighs In: “Decisions are being made on behalf of actual shareholders that are contrary to their interests! Major problem with index/passive funds,” he tweeted.
Cathie’s Words: “In my view, history will deem the accelerated shift toward passive funds during the last 20 years as a massive misallocation of capital,” she tweeted. Wood coincidentally used Elon’s Tesla as an example — ”Passive funds prevented many investors from enjoying a 400-fold appreciation in $TSLA from a $1.6 billion market cap at its IPO in June 2010 to ~$650 billion when it entered the S&P 500 ten years later in December 2020.”
Bottom Line: Different investment strategies work for different people… But what happens if everyone was a passive investor? Michael Green has done plenty of research on this concept — click here to watch an interesting (albeit quite scary) conversation that shows how passive investing can actually cause more harm than good to the market.
Small Business Owners See a Recession Coming
Currently, the most bearish people in the land seem to be small business owners, with 8 in 10 expecting a recession this year, according to the latest CNBC|SurveyMonkey Small Business Survey. Compared to just over half of investment and economic professors who think the Fed’s tightening will eventually cause a recession.
The small business confidence index remains near its all-time lows and far below its pre-pandemic baseline. The survey found 6% of small business owners see the economy as excellent, 18% as good, 31% fair, and 44% poor. 2,027 small business owners were polled between April 18th-25th.
Biggest Fear: 38% of those polled say inflation was their biggest worry, followed by supply chain disruption 19%, Covid 13%, and labor shortages 13%.
Rising Prices: 75% of owners polled said they’re experiencing increased cost of supplies. 17% said it was a good time to raise prices, 35% said its a bad time to raise prices, and 47% had mixed opinions.
Outlook: According to the National Federal of Independent Business monthly survey, 49% of business owners expect conditions to worsen over the next 6 months. A massive increase from last months reading of 35%.
E-Comm Stocks Crash as Consumers Push Back
For some time, e-commerce was one of the only ways that businesses could actually reach customers… but it looks like the combo of an opening economy and higher prices is finally weighing down on shopping habits.
And e-commerce stocks are suffering big-time as a result. Warning: these stock moves may shock you.
- Shopify (SHOP): -14.9% (-69.7% YTD)
- Wayfair (W): -25.6% (-65.6% YTD)
- Etsy (ETSY): -16.8% (-56.7% YTD)
- Poshmark (POSH): -3.8% (-30.7% YTD)
- Warby Parker (WRBY): -8% (-51.6% YTD)
- Peloton (PTON): -9.1% (-51.7% YTD)
- Revolve (RVLV): -9.3% (-41% YTD)
Shopify earnings today weighed down on the industry. SHOP reported a miss on EPS ($0.20 vs. $0.63 expected), and forecasted that the high-flying growth of the pandemic is slowing down fast.
Brick-and-Mortar is staging a comeback… E-commerce transactions are down 1.8% from a year ago, while in-store sales are up 10%, according to Mastercard SpendingPulse. Investors are worried that inflation is causing consumers to pull back on online spending in order to make sure they can keep up with the essentials.
- Shifting priorities: Wayfair CEO Niraj Shah echoed something we talked about earlier this week — the fact that shoppers are moving their hard-earned cash away from discretionary categories and “reprioritizing experiences like travel” instead.
What does this mean for investors? Last week’s Amazon earnings report set a downbeat tone for e-commerce as the company recorded its slowest revenue growth since the dot-com bust in 2001. Its forecast didn’t paint a pretty picture either… leading to the stock falling 7%. AMZN is now down 19.5% since its Q1 earnings release.
- Similarly, smaller e-comm players are feeling the pain. “Investor appetite for high growth, negative EBITDA (and free cash flow) pandemic winners is very low,” Wells Fargo analyst Zachary Fadem said in a note to clients.
Looking Forward: If you’re invested in this space, be sure to check in on earnings reports from Peloton, Poshmark, Thredup, and Allbirds next week for more insight into the online retail market.
Bitcoin to $100K or $30K First? Here’s the Deal…
No one knows what’s going to happen. That’s a given. But using analysts’ research, forecasting, and some good ole technical analysis, we can kinda get an idea of which outcome is more likely.
A popular crypto Twitter influencer/trader, Credible Crypto, did some analysis of his own — and while many in the crypto market are expecting a larger drawdown in Bitcoin, he’s staying true to his bullish perspective for the time being.
- Credible Crypto says that in 2019, Bitcoin returned big to the upside when the market expected a ‘capitulation event.’
- What is that? Capitulation occurs when investors give up any previous gains in any security or market by selling their positions during periods of declines, according to Investopedia.
Basically, the idea is that historically, BTC has ‘surprised’ the market when everyone expects investors to give up and for the cryptocurrency to tap new lows. Pointing back to 2019, the market only hit new lows in March 2020 after experiencing a macro top.
- “These lows that have built up — we don’t have to take them now; we could very well continue up for the fifth wave,” he explained.
The charts show that we’re getting close to that range that defined the lows of 2021 (above $30k). And while ‘capitulation’ may in fact occur, analytics firm CryptoQuant doesn’t see it as a likely scenario either.
- Looking at exchange flows… CryptoQuant says that exchange inflows “dropped sharply” after January of this year, and outflows are still on the rise (a bullish indicator).
- “Therefore, if the market continues to trend as severely as the media forecasts in general, and no terrible events are happening unexpectedly (unpredictable), the crab can be repeated, but the capitulation may not occur,” CryptoQuant summarized.
Up, then Down: While expecting a drop to $30k or lower in BTC is surely a respectable position, Credible Crypto believes that Bitcoin can just as easily shock the market by reaching new all-time highs (and even hitting the coveted 6-figure level this year) before crashing down to a new low.
Max Pain: In the event that BTC doesn’t rocket from here to a new high, Bitcoin whales aren’t fazed. In fact, traders see the $27k price level as a place to “go all in” on the cryptocurrency, according to Whalemap.
- As a historically significant zone for investors, Whalemap commented that “$25K-$27K area is max pain for many.”
Stocks Just Had Their Worst Day of 2022
Yesterday gave a lot of hope to investors that were in desperate need of a green day… But unfortunately, things flipped negative once again — in dramatic fashion.
Investors were looking happy yesterday as the market digested Powell’s comments about the hawkishness of the Fed. But today, stocks just had one of their worst days of the year. It looks like taking a 75 basis-point hike off the table wasn’t enough to quell market concerns.
- For comparison, the 5 worst days for the S&P 500 so far in 2022 showed declines of 3.56% (today), 3.63% (April 29), 2.95% (March 7), 2.81% (April 26), and 2.77% (April 22).
- Today also marks the Nasdaq’s biggest decline since June 11, 2020 when the index fell 5.27%.
Did we just get punked? Investors may have used yesterday’s rally as the perfect excuse to cash out at some higher prices before more pain ahead.
- Scott Redler, a partner with T3Live.com, said that yesterday’s price action was all one big “head fake” for investors. “From false moves to fast moves, that’s what’s happening now. This type of action definitely puts the neckline in play for a break in the week or so ahead,” he said.
And things could just get worse from here… Redler showed CNBC that there is a massive head and shoulders pattern developing in the S&P 500. Chart analysts were expecting the market to break below its ‘neck-line’ with a dip on Monday, but that didn’t happen.
- Today’s wild move to the downside brings the chart pattern back into play, though.
- A Steeper Decline: Redler says that an S&P close below 4,100 could result in another decline to the 3,850 level (a drop of nearly 7% from current levels).
The most important technical level that analysts are watching, however, is 4,062. A drop below that could spark a downside collapse to 3,460. “That’s definitely in the cross hairs. Anytime there’s a low point or high point, people know about it and whether it’s used as a real stop loss or point of reference, it’s important to recognize,” said Frank Cappelleri, executive director at Instinet.
Are we screwed? Maybe. But on the bright side, some analysts see signs that inflation could be peaking. Jim Cramer said today, “Inflation will not be like this three months from now.”
- “We think that it doesn’t matter what [Powell] said. What matters are the machines, these machines that are set to trade off of a bond and we breached 3% on the 10-year. The machines know that we’re testing Powell’s decision to go against 75 [basis points],” Cramer said.
2x Long Vix ETF (UVIX): +40.41% – The Vix surged today as volatility ramped up in today’s massive selloff.
Tripadvisor (TRIP): +5.09% – Tripadvisor posted earnings that were in line, with revenue surging 113% YOY and a positive forward outlook on summer travel.
Nikola (KNLA): +6.39% – Nikola beat revenue estimates by 1,367%, while EPS beat by 16.21%.
Sprouts (SFM): -24.24% – Sprouts got destroyed following mixed earnings, but expects headwinds in 2022 due to inflation. The stock also saw multiple downgrades.
Fastly (FSLY): -18.09% – Fastly missed EPS by 5.62%, beat revenue by 3.48%, but announced they were looking to replace CEO Joshua Bixby.
Etsy (ETSY): -16.83% – Etsy was one of the worst-hit e-commerce plays today amid the Shopify profit miss and lowered outlook.
Fisker (FSR) – Morgan Stanley reiterated Fisker as overweight but says its seeing “increasing risk.” “FSR 1Q results were in line with forecasts with no change to the FY opex/capex guide. The company has enough cash to launch the Ocean, but in our view will need significantly more to ramp while insuring against execution and supply chain volatility.”
Teladoc (TDOC) – Argus downgraded Teladoc from buy to hold being “too uncertain” of an investment right now. “We had upgraded the stock to BUY in March based on our view that the company had a clear path to profitability. However, Teladoc’s disappointing 1Q22 results, with slower-than-expected revenue growth and declining margins, suggest that profitability is still far off. … . Beyond that, we believe that the company’s prospects are too uncertain to make TDOC a sound investment.”
Sprouts (SFM) – Bank of America downgraded Sprouts from buy to underperform due to pricing pressure. “We have an Underperform rating on SFM as we believe accelerating price increases are not likely to drive material EPS upside given SFM’s more narrow assortment of higher price point (vs. conventional grocers and discount stores) specialty items.”
Quote of the Day: “Invest for the long haul. Don’t get too greedy and don’t get too scared.” – Shelby M.C. Davis
Fun Fact: The US stock market is 46% of the entire world’s stock market capitalization in 2022.