Stocks Can’t Possibly Go Down
We never thought we would see stocks spike on news of vaccine shipments being marred in confusion, but here we are. Stocks only go up everyday no matter what the valuations are. For example, Shopify rose 2% on Thursday, putting its year to date return at 189%. This is now a $144 billion company. Its forward PE ratio is 350.
At least it turns a profit unlike Snowflake which has a 2023 PE multiple of -442. Snowflake stock is down 16.5% since December 8th possibly because all the supply coming from new IPOs made it look like yesterday’s news.
The 2 major IPOs of the past few weeks were Airbnb and Wish. Airbnb is up 17.8% in the past 2 days, pushing it marginally above its first close. It has a market cap of 88.4 billion. Some have been predicting it will get to $100 billion because any pie in the sky company gets a free $100 billion valuation just for having a concept.
Speaking of pie in the sky, Stitch Fix is up 91.9% since December 7th when it reported only 10.3% sales growth. Apparently, bubble stocks don’t even need to have good sales growth to go up. Wish was a rare dud of an IPO, but the stock recovered on Thursday rallying 11.1%. Few stocks are allowed to go down.
Crazy Euphoria
Market euphoria appears to now be the status quo. Normally, investors would be shocked with how much stocks are up, but now we are all used to it. The NAAIM fund manager exposure index fell from 106.11 to 101.47 marking the 5th straight week it was above 100. In August, which was a euphoric month, it was only above 100 3 weeks in a row. You look stupid if you aren’t leveraged long the riskiest stocks.
As you can see from the chart below, 90.19% of Russell 3000 stocks are trading above their 200 day moving averages which is the most since 2009. For the Russell 2000, it’s 89% which is the most since 2004. We got the rally in small caps we were looking for without the selloff in large caps as the Russell 2000 is now up 18.55% year to date.
Emerging Markets Near Resistance
On Thursday every index went up as the S&P 500 rose 58 basis points, the Nasdaq rose 84 basis points, and the Russell 2000 was up 1.3%. The Vanguard emerging markets index was up 80 basis points which puts it down just 1.57% from its January 2018 high.
As you can see from the chart below, the MSC emerging markets index is leaning up against its all-time high in 2007. Emerging markets are going to have a great 2021 and smash through that record while the S&P 500 languishes.
Once again, both the Nasdaq 100 and small cap value stocks rose. It is a party for all types of stocks. Unless a stock is in the tobacco, energy, or banking industries, it has done well this year. Tobacco will likely have a good 2021 which is why Altria is one of my best ideas for the year. The Nasdaq 100 was up 65 basis points and the small cap value index was up 89 basis points. The cloud index was up a massive 3.12%.
December is the best month for momentum stocks and January is the worst. The CLOU is up 73.3% year to date. It will finish out the year strongly and then fall in January. Both small banks and oil services fell which makes it odd that small cap value managed to be up.
Tesla Is The King Of The World… For Now
Tesla is the hottest stock in the market which is saying a lot because this has been a great year as the Nasdaq 100 is up 46% year to date. Of course, one of the main reasons the Nasdaq 100 has done so well is Tesla itself as the firm has a 3.31% weighting in it. Tesla stock was up a massive 5.3% to a record high on Thursday.
We have gotten very used to the stock going up for no reason. As you can see from the chart below, Tesla’s market cap is higher than Facebook’s was at the start of the year. It can pass Facebook if this rally continues for a few more weeks.
Friday is quadruple witching day and the last day for index funds to buy Tesla before it is included in the S&P 500. The stock orders will be made to purchase at the close, so we might see Tesla spike even further on Friday afternoon before crashing next week. In other news, Tesla was upgraded from BB- to BB with a positive outlook by S&P Global which means it is 2 rankings below investment grade.
We have never seen such a large company be rated junk. The firm has a net cash position and it’s still not rated investment grade. This is why the firm keeps issuing shares instead of taking out debt. We probably won’t see Tesla issue debt instead of stock for a few years.
SPAC Bubble
When SPACs started gaining popularity in the summer, we thought the insanity couldn’t last. That was very wrong as you can see from the chart below. SPACs are a mania like the marijuana stocks in the recent bubble. The current SPAC market is $113 billion which would make it a large cap stock. It is generating $23 billion in fees which is why it is a disaster for investors.
It will be very interesting to see if Robinhood can IPO before the mania in crazy stocks like SPACs ends. The firm plans to go public in Q1 2021. The firm has a window to raise money in the hottest market in decades and its clients are the speculative gamblers that will buy it. It will be epic.