Institutional vs retail investors, bubble stocks meltdown, earnings preview Institutional vs retail investors, bubble stocks meltdown, earnings preview Institutional vs retail investors, bubble stocks meltdown, earnings preview

Institutional vs retail investors, bubble stocks meltdown, earnings preview

Equities 10 minutes to read
PG
Peter Garnry

Head of Equity Strategy

Summary:  Yesterday was a weird equity session with massive divergence and flows are pointing in all directions. Institutional investors are quite clearly net buyers of value sectors such as energy, financials, and commodities while selling growth and technology stocks. Retail investors are seemingly net buyers of US equities and speculative growth stocks. The question is who will win battle. Both cannot win at the same time. We also take a look at bubble stocks which are now down 51% from the peak in February 2021, and finally we go through next week's earnings with focus on ASML, Netflix, and Schlumberger.


Strange internal moves in equities

Yesterday’s session was weird with a massive 9%-points performance spread between our e-commerce and bubble stocks baskets while the US 10-year yield fell. This was the opposite reaction function of what we have lately seen and the commodity sector was yet again bid. It seems that there are internal flows pointing in different directions with institutional investors likely positioning for inflation through semiconductors, logistics, commodity sector and financials, and are selling growth stocks, while retail investors are net buyers and are still focusing on speculative growth stocks despite falling inflation.

Ark Invest at the center of the bubble stocks meltdown

As we have said multiple times recently, the Ark Innovation ETF is the most liquid expression of our bubble stocks basket and the speculative growth stocks segment that retail investors like. The five-year weekly correlation between our bubble stocks basket and the Ark Innovation ETF is 0.85 and on daily observations the past year it is 0.90, so essentially the two baskets overlap a lot. Our bubble stocks basket is down 51% from the peak in February 2021 and Ark Innovation ETF is down 49%, the worst drawdown in the fund’s history eclipsing the 35% during the pandemic led selloff.

Source: Bloomberg
Source: Saxo Group

The Ark Innovation ETF closed below $80 yesterday and is at a critical level technically and if we were to guess what is happening it is two things. Firstly, the rotation from growth or high duration assets into lower duration and value/cyclical stocks have intensified among large investors driving a big change in exposures and flow. That is hitting Ark Innovation ETF big time. Secondly, a lot of hedge funds are likely smelling blood in the water and are aggressively shorting these types of high duration assets. As we have been writing in our equity updates since New Year the selloff is intensive and given that the US 10-year yield is only up 23 basis points this year it would imply that bubble stocks have a duration of 60, or things being equal, which is not the case, so if we assume markets are efficient it is likely reflecting lower revenue growth and operating margin profiles of these speculative growth companies. That is why the earnings season could become a short squeeze minefield if some of these companies continue to deliver strong revenue growth and signs of improving operating margins (although coming from negative values).

Earnings preview: ASML and Netflix are the first technology stocks to be judged

The earnings season is under way this week and we have got good mixed earnings with Fast Retailing disappointing on revenue and Philips issuing a profit warning, while companies such as Delta Air Lines and Chr Hansen were positive stories with upbeat CEOs and better than expected figures. Today we will get earnings from Wells Fargo, BlackRock, JPMorgan Chase, and Citigroup with consensus looking for Q4 EPS to decline q/q (except for BlackRock) due to lower market activity mimicking Jefferies’ earnings on Wednesday, but we expect these companies to sound quite upbeat on the outlook driven by rising interest rates.

Next week we will get more earnings, primarily from the US, but it will not be until the week after that we will get the real action from earnings.

Next week’s earnings releases:

  • Tuesday: Goldman Sachs, PNC Financial Services, Truist Financial, Bank of New York Mellon, Interactive Brokers
  • Wednesday: ASML, EQT, UnitedHealth, Bank of America, Procter & Gamble, Morgan Stanley, Charles Schwab, US Bancorp, Kinder Morgan,
  • Thursday: Sandvik, Netflix, Union Pacific, Intuitive Surgical, CSX, SVB Financial Group, CSX, Travelers
  • Friday: Investor, Schlumberger, IHS Markit

 

From next week’s earnings releases the three earnings we would highlight are ASML, Netflix, and Schlumberger.

ASML is the biggest manufacturer of semiconductor equipment and given the outlook yesterday from TSMC, the world’s largest semiconductor foundry, investors are still bullish on the industry. Analysts expect Q4 revenue to rise 20% y/y and EPS to rise 15% y/y signalling continued strong growth for ASML. The capital expenditures planned over the coming years will keep the growth rates high. The recent decline in the share price has increased the spread between the consensus price target and the current price to 20%.

Source: Saxo Group

Netflix is a company that has faded a lot among the technology stocks with so many new IPOs within technology stocks and video streaming is no longer seen as something and Netflix is not unique with many companies that have entered the business (Apple, Amazon, and Disney). Analysts expect revenue to increase 16% y/y and EPS to decline 49% y/y as capital expenditures are rising again following a production drought due to the pandemic.

Schlumberger is of the world’s largest oil services companies and stands to win from the high oil and gas prices as they should incentivize integrated oil and gas companies to soon begin lifting their capital expenditures although they have lately been reluctant to communicate that message to the market. Analysts expect revenue growth at 10% y/y and EPS to rise 79%.

Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.