Modest Decline On Friday
The stock market ended the week on a 3 day losing streak as the S&P 500 fell 13 basis points. A COVID-19 relief bill hasn’t passed, the virus is spreading quickly, and the vaccines are on their way. In my opinion, the fact that there is still uncertainty is bullish for cyclicals because it means good news is coming. By the time the virus is gone, the bull thesis on reopening stocks will be over.
Cinemark has recovered almost all of its losses on fears the theatrical exclusivity window would close. Its stock rose 8.4% on Friday. It is one of the better reopening plays because once the economy reopens all the movies that were delayed from last year, besides the ones that came out on streaming services, will be released in theaters. Plus, there will be a rush of demand as people will want to leave the house.
The famous Santa Claus rally is coming soon. It’s amazing how simplistic the mainstream financial media can be at times. As you can see from the chart above, the Santa Claus rally is in the 2nd half of December. Of course, stocks crashed in December 2018 and bottomed on Christmas Eve because of the Fed, not seasonal factors. This December will be interesting because there won’t be much tax loss selling. Who has losses these days?
The big losers are in energy, so there might be selling there. However, the biggest losers had massive gains in November, so those losses aren’t as big anymore. Some investors are bullish on energy for the next few quarters as the economy reopens. Of course, there will be pullbacks, but that doesn’t mean you should sell. Should you sell a stock that can double just because it might fall 10% in the process? No, you hold on for dear life as gains come fast.
Retail Mania
As has been well documented, retail investing has gone bonkers. They are even using options which should be left to knowledgeable investors not newbies because of the potential risk involved. There was even a story of a young trader who committed suicide after losses on options trades.
Options don’t have to be risky, but anything is risky if it isn’t used properly. The best way for new investors to get involved in the market is to buy companies they know. Some are doing this by buying Apple and Netflix. Even that advice isn’t perfect because Tesla is well loved, but it’s a poor business.
The top stock traded by small investors is Tesla. The next 4 are American Airlines, Amazon, Occidental Petroleum, and Apple. Retail investors love the cruise and airline stocks because they are easy to understand reopening stocks. The problem is these firms have issued a ton of shares and debt this year which is why their stocks shouldn’t return to pre-COVID-19 levels.
11.7% of American Airlines’ shares were traded by small investors. 43.3% of H&R Block shares were traded by small traders. H&R Block has had a terrible year as its stock is down 32.2%. No one wants to do their taxes in person at an office.
Small traders have discovered options. They are excited about weekly call options which are risky. Of course, Tesla is again the most popular stock (for small options trades). They make up 46% of Tesla’s options trades. The next 4 most popular stocks for retail options traders are Amazon, Apple, Zoom, and Boeing. The stocks with the highest percentage of small options volume are Pfizer (86%), American Airlines (85%), and Twitter (85%).
Twitter stock has recently done well because of the new ability to share tweets on Snapchat. Frankly, I don’t think this is that big of a deal. Only people who already have a Twitter will use this feature. Most people who view stories with tweets in them aren’t going to tap on the tweets. They will read them and move on to the next story.
You can spin this as a potential growing partnership where these smaller players try to go up against Facebook and Instagram (which Facebook owns). Twitter stock rose 8.4% on this news and is only down 1.9% from when it reported weak user data. Investors are feeling speculative.
New retail traders haven’t experienced the heartache Twitter has caused investors since it went public. Snap has been a massive winner. The stock is up 164% in the past 6 months. It has a $79.5 billion market cap without any profits to speak of.
Social media isn’t the most speculative part of the market though. That is in alternative fueled cars. Tesla was down 2.7% on Friday. Nio fell 7.2% because of its secondary. FuelCell was down 4.5%, putting it down 22.8% since its peak on November 30th. Arcimoto fell 8.1%. Plug Power fell 1.5%. It’s up 726% year to date. As you can see from the chart above, the firm has issued a ton of shares in the past 8 years diluting investors and growing its market cap.
Disney Wows Investors
Disney is one of the hottest mega cap stocks in the market now. It’s up 106% since its March low as the chart shows. It rose 13.6% on Friday because its investor day impressed investors. The firm will invest heavily into streaming. It will release over 100 shows and movies in the upcoming years, with 80% going to Disney+.
The firm expects to see 230 million to 260 million subscribers by 2024 which means this has been dramatically better than initial estimates. In addition, the firm will raise the monthly subscription cost by $1 to $7.99. This will crush the competition. In the long run, we know even this raised price is far too low for what Disney will offer. Think of the initial price as a customer acquisition tool. We can see the monthly subscription price rising to $15 in the next few years.