3 reasons why the stock market could enter risk-on mode in August after a couple choppy months, according to Fundstrat’s Tom Lee

Tom Lee
  • The stock market is primed to enter risk-on mode in August following a sideways summer chop, Fundstrat’s Tom Lee said in a note on Friday.
  • Lee pointed to an imminent peak in Delta-variant cases and surging bitcoin prices as reasons to expect upside in stocks next month.
  • These are the 3 reasons stocks are primed to move higher in August, according to Fundstrat.
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After weeks of a sideways “chop” in certain stock sectors, August could be the month risk-on mode returns for the market, Fundstrat’s Tom Lee said in a note on Friday.

Lee highlighted that since early June, epicenter stocks collapsed while a handful of names in the technology sector moved higher and propped up broad market indices. The steep drop in financial, energy, and hotel/cruise stocks came amid a surge in COVID-19 cases caused by the delta variant.

Historically, not much money has been made in stocks in the month of August, especially when markets delivered strong gains in the first half of the year.

“August is not generally a great month for stocks. The win-ratio is low at 54% overall,” Lee said, citing an analysis of data going back to 1928. And when the S&P 500 is up more than 13% in the first half of the year, August returns average -0.50%, according to the analysis.

But these 3 reasons suggest to Lee that the stock market can buck its historical trend and enter risk-on mode.

1. “Seasonal analysis suggests USA Delta spike could end in next 10-12 days, or sooner.”

Lee highlighted that low vaccinated areas are seeing far worse seasonality in COVID-19 spread than higher vaccinated areas. An analysis of COVID-19 in the 5 largest counties in Florida suggest that a peak could be right around the corner, within the next week or two, according to Fundstrat.

“Florida has been among the worst USA Delta outbreaks. Thus, this is a positive inflection, if the cases turn down next week,” Lee said.

2. “Pfizer just released data showing 3rd shot significantly boosts delta antibody response by 5x.”

Data from Pfizer suggests that a third dose of its COVID-19 vaccine leads to a 100-fold increase in Delta neutralizing antibodies relative to a non-vaccinated person,, and a 5-fold increase relative to the second dose, Lee highlighted.

“The case for boosters is very high and is a sound policy strategy,” Lee said, while acknowledging the main challenge is convincing about a third of the US that has yet to be vaccinated to get their shots.

“But this should not change the fact that the Delta risk to the US is strongly diminished. And thus, we are seeing positive tilt on the Delta variant risk,” Lee explained.

3. “Bitcoin, the global non-US ‘risk-on’ proxy is pushing above $40,000 = risk on!”

Bitcoin is set to post its first positive monthly gain in four months, and its best week since February, as the cryptocurrency rallied more than 30% from $30,000 to $40,000. And Lee still expects bitcoin to close above $100,000 in 2021, representing potential upside of 163% from current levels.

“Bitcoin is the risk-on asset for emerging market investors, more than equities. Risk appetite seems to be returning in the past week,” Lee said, adding that the rally is occurring as a lot of bad news is priced in following China’s crackdown.

“So for now, we are upgrading our baseline expectations for August. Instead of ‘chop’, it’s ‘upside bias,” Lee concluded.

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Investors should sell stocks and raise cash as bearish indicators pile-up for the S&P 500, BofA says

NYSE Trader
  • Investors should sell stocks and raise cash as the S&P 500 pushes up against the 4,400 level, Bank of America said in a note on Tuesday.
  • The bank sees bearish technical indicators piling up for the index as negative divergences persist.
  • “Sell strength into the 4,400s, especially with the arrival of bearish August-October seasonality next week,” BofA said.
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Investors should take advantage of any strength in the S&P 500 and sell stocks to raise cash as bearish indicators begin to pile up, Bank of America said in a note on Tuesday.

The bank points to negative divergences and a deterioration in market breadth, or upside participation of stocks in the market, as reasons to sell when the S&P 500 pushes up against the 4,400 level. In recent weeks, most gains in the stock market have been driven by a narrow group of companies including mega-cap tech names like Alphabet, Amazon, and Apple.

“We continue to flag lower highs from the S&P 500, NYSE stocks, NYSE all issues and US top 15 most active advance-decline lines moving into late July,” BofA explained.

The arrival of bearish seasonality in the stock market is another reason to sell into strength, according to the note. “Sell strength into the 4,400s, especially with the arrival of bearish August – October seasonality next week,” BofA said.

The S&P 500 could find support around 4250 and 4100 if stocks begin to turn lower, representing potential downside of 3% and 7% from Wednesday’s close.

Along with the bearish divergences and weak seasonality, margin debt has soared to a record high of $882 billion in June. This represents an elevated risk for US stocks if margin debt ultimately peaks.

“Although peaks in margin debt don’t always coincide with highs for the S&P 500, they tend to be bearish for US equities,” BofA said.

BofA margin debt
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13 must-see charts, plus an $875 mini bitcoin-mining rig

Hello and welcome to Insider Investing. I’m Joe Ciolli, and I’m here to guide you through the current market and investing landscape. Here’s what’s on the docket:

If you aren’t yet a subscriber to Insider Investing, you can sign up here.

Have thoughts on the newsletter? Just want to talk markets? Feel free to drop me a line at jciolli@insider.com or on Twitter @JoeCiolli.


13 must-see charts for the 2nd half of 2021

An employee views trading screens at the offices of Panmure Gordon and Co

The first half of 2021 in the stock market has been full of once-in-a-decade events. We asked 5 strategists from leading institutions to outline the most compelling charts informing their outlooks for the second half. Here are their top 13.

Read the full story here:

13 must-see charts for navigating markets in the second half of the year, according to strategists at 5 top investment banks and asset managers


Check out this $875 mini bitcoin-mining rig

This is a photo of Idan Abada, a crypto TikTok influencer and miner, holding a mini bitcoin mining rig. He's wearing a black t-shirt.

Idan Abada has gone viral on TikTok with an $875 mini bitcoin-mining rig. He explained to us how mini miners are generally used, what people usually hope to accomplish, and which limitations can impede success.

Read the full story here:

An $875 mini bitcoin-mining rig is viral on TikTok. The video’s creator told us 3 reasons why it’s an appealing alternative for crypto traders, and explained its limitations.


An interview with Grayscale’s CEO

Michael Sonnenshein

Grayscale Investments has launched a DeFi index fund in collaboration with CoinDesk Indexes. The market-cap-weighted index fund is Grayscale’s 15th product and tracked 10 tokens as of July 1. Grayscale CEO Michael Sonnenshein told Insider why they’re launching the DeFi fund now.

Read the full story here:

The world’s largest crypto asset manager is launching a decentralized finance index fund. Grayscale CEO Michael Sonnenshein told us why the firm is betting on DeFi amid surging demand from institutional investors.


Stock pick central

Seeking experts who are willing to name names? Look no further:

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The latest stock sell-off is a ‘healthy pullback’ and investors should refrain from panicking, according to one technical analyst

NYSE Trader
A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 9, 2020.

  • The ongoing sell-off in the stock market represents a “healthy pullback,” technical analyst Katie Stockton said in a note on Monday.
  • The S&P 500 is down about 3% from its record high, with losses accelerating in Monday’s trading session.
  • “We think the pullback will be short-lived, maturing later this week,” Stockton said.
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A sell-off in US stocks accelerated on Monday, with the S&P 500 falling as much as 2% amid investor concerns about rising COVID-19 cases due to the Delta variant.

But technical analyst Katie Stockton of Fairlead Strategies views the sell-off in stocks as a “healthy pullback” that will likely be short-lived and could present a buying opportunity, according to a Monday note.

The S&P 500 fell below its 20-day moving average on Monday for the first time since June, when a four-day pullback took hold in the market.

“But we think [this] pullback will be similarly short-lived, maturing later this week with the McClellan Oscillator and daily stochastics having already fallen to levels associated with the June low,” Stockton explained.

The McClellan Oscillator measures market breadth, which has been deteriorating in recent weeks as mega-cap tech stocks like Apple and Amazon led the market higher. Meanwhile, the Stochastic Oscillator is a momentum indicator that helps identify overbought and oversold levels of a specific security.

Stockton sees support for the S&P 500 at its 50-day moving average, which sits at 4,240 at time of publication. So far, that support has held, with the S&P 500 hitting an intra-day low of 4,239.82 before paring its losses.

“I think the market is getting flushed out here,” Stockton told Insider, adding that she is seeing lots of extremes in certain market indicators. Stockton said the S&P 500 e-mini futures flashed a DeMark “13 buy” signal, which hasn’t occured since June 21.

“I would be looking for opportunities to add exposure (and, cover shorts) in the coming days assuming the signal gives way to stabilization,” Stockton said.

Stockton isn’t alone in thinking that the current sell-off in stocks may be limited. Fundstrat’s Tom Lee argued in a note on Monday that the COVID-19 Delta variant represents “more bark than bite” and that the current sell-off sets stocks up well for a rally in the second half of the year.

S&P 500 futures stock chart
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A big sell-off in the stock market is unlikely for these 2 reasons, according to Fundstrat’s Tom Lee

Tom Lee
  • A large sell-off in the stock market is unlikely for 2 key reasons, Fundstrat’s Tom Lee said in a note on Monday.
  • Recent weakness in stocks can be largely attributed to rising COVID-19 cases, according to Lee.
  • “July chop ultimately a great set-up for risk assets to rally in 2H2021,” Lee said.
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Recent weakness in the stock market will likely be short-lived and won’t extend into a large decline for two key reasons, Fundstrat’s Tom Lee said in a note on Monday.

The stock market saw a steep drop to start this week, but Lee is maintaining a bullish outlook on steady bond yield spreads and a stable VIX term structure, according to the note.

Bond yields being stable relative to Treasuries is a positive signal for stocks, while the VIX term structure usually inverts when a correction looms. Right now, the VIX term structure, which is the difference between four-month and 1-month VIX contracts, remains flat, according to Lee.

As of Monday morning, the S&P 500 is down nearly 3% from its record high. According to Lee, the decline is tied to the recent uptick in daily COVID-19 cases due to the fast-spreading Delta variant among unvaccinated individuals.

But the rising COVID-19 cases represent more bark than bite, according to Lee, who doesn’t expect the decline in stocks to extend into a meaningful sell-off.

“We don’t expect this period of chop to lead to a larger 10%-like decline for markets. Sure, a 3%-5% sell-off, even to S&P 500 4,100 is possible,” Lee said.

Instead, Lee expects the current weakness in stocks to ultimately be “a great set-up for risk assets to rally” in the second half of 2021, especially as the ongoing rise in COVID-19 cases likely peaks sometime in August, according to the note.

“If India saw cases peak within 4-6 weeks from initial surge, we expect USA, UK and Israel to see similar trajectories,” Lee explained.

To take advantage of the potential rally in stocks later this year, Lee suggests investors focus on buying epicenter stocks that are poised to benefit from the ongoing reopening of the economy, as well as mega-cap tech stocks.

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Billionaire ‘Bond King’ Jeff Gundlach said bitcoin could tumble 27% from current levels and warned the dollar may be ‘doomed’ in a recent interview. Here are his 10 best quotes.

Jeffrey Gundlach
Jeffrey Gundlach

Billionaire investor and “Bond King” Jeff Gundlach said inflation of today reminds him of the 1970’s, warned that the dollar may be doomed in the long term, and said that bitcoin’s chart looks “scary” in a Thursday CNBC interview.

Here are the DoubleLine Capital founder’s 10 best quotes.

1. “The chart on bitcoin looks pretty scary….I have a feeling you’re going to be able to buy it below 23,000 again. Bitcoin has really lost its steam.”

2. “I think it’s only a trading vehicle. I’ve never been long bitcoin personally. I’ve never been short Bitcoin. It’s just not for me. I don’t have that kind of risk tolerance in my DNA where I have to get worried to pull up the quote every day to see if it’s down 20%. But I would not own Bitcoin presently. I think you had an opportunity to buy it at a cheaper level.”

3. “I don’t want to be overly dramatic, but I think the dollar-I will use the word ‘doomed’ in the long term. In the short term, the dynamics have been and will continue to be in place for the dollar to be marginally or moderately stronger.”

4. “It”s getting difficult for the Fed to talk about this inflation situation as being temporary or ‘transitory’, as they like to say…import prices came up today up 11%. We all know the CPI came up with 5.4. I mean, these are numbers that remind me of the 1970s.”

5. “Inflation right now is not decelerating. It’s accelerating right now. And I’m going to go with the trend is your friend until there’s some evidence to the contrary.”

6. “As long as [the stimulus] goes on, I think the stock market can stay at nosebleed levels as it has been and continue to kind of grind higher.”

7. “The biggest case for stocks is that they’re cheap to bonds. They still are cheap to bonds because the bond yield is so ridiculously low.”

8. “I don’t really hear anybody talking about what they’re going to do with the planed curtailment of stimulus, but I expect that to start becoming an issue pretty soon,” said Gundlach. “The issue is, if the stimulus continues at the level it’s at, the inflation is not going to go away. In fact, the inflation could get worse. If they take the stimulus away, then the inflation probably won’t get worse, but the economy is extremely uncertain at that point in time.”

9. “It’s all part of this speculative mania that has been fueled by repeated rounds of stimulus. The first rounds of stimulus people saved a little bit or pay down their credit card debt. The most recent round of stimulus went into speculation and spending. So if stimulus continues, it’s going to go into speculation and spending,” on meme stocks and the SPAC frenzy.

10. “It’s odd when the CPI comes out hot, the bond market doesn’t go down..that’s obviously because the bond market is thinking one move ahead in the chess game: that the Fed may actually have to start doing something about seriously, reducing the bond buying programs, and maybe even God forbid start raising short-term interest rates.”

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BlackRock’s Larry Fink doesn’t believe inflation is going to be transitory – and says bitcoin demand from his clients is very low

Larry Fink
Larry Fink.

  • BlackRock’s Larry Fink is not on the side of the “inflation is transitory” debate.
  • “I do not believe inflation is going to be transitory,” he said, after consumer prices rose at their fastest since 2008.
  • BlackRock clients aren’t interested in bitcoin and are more driven by long-term returns, he said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

BlackRock CEO Larry Fink told CNBC on Wednesday he doesn’t believe the surge in inflation gripping the world will be fleeting, and the way the Federal Reserve and other central banks navigate this environment will have great significance.

“I do not believe inflation is going to be transitory,” he told CNBC’s “Squawk Box” after consumer prices increased 0.9% in June, far higher than the 0.5% consensus estimate of economists polled by Bloomberg.

Most Wall Street economists and the Fed have stuck to the argument that rising prices will indeed be short-lived.

While Fink said he expects inflation to be more “systematic” over time, he is worried about the delta variant of COVID-19 slowing down parts of Asia and further disrupting supply-chain shortages.

“We are seeing a real disconnect between the countries that have been very vaccinated and moving forward on vaccination, and the countries that have been late in vaccination, but focusing more on isolation,” he said. “Isolation worked before we had a vaccination.”

That could lead to uneven recovery across the world. But with record amounts of monetary stimulus and cash still waiting to be put to work, the growth trajectory is eventually pointing upward, he said.

“I believe the trend line is still going to be upward, maybe not as fast, maybe it’s going to be very moderate for the next six months as we digest how the world is able to handle the Delta variant and the speed in which vaccinations occur throughout the world,” he said.

Fink, who has previously said cryptocurrencies could become a great asset class, said BlackRock is seeing low investor demand for bitcoin.

“That is just not part of the focus on retirement and long-term investors,” he said about demand for cryptocurrencies. “We see very little in terms of investor demand on those types of things, but quite frankly (many) may not come to BlackRock for that type of demand.”

He added BlackRock investors are more focused on building long-term returns over a long period of time, and “we don’t have those conversations.”

Read More: BANK OF AMERICA: Buy these 22 stocks set to completely crush earnings expectations as volatility around reports creates a stock-picker’s paradise

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Investor bullishness is at a 3-year high but concerns about inflation have soared, E*Trade survey reveals

NYSE TRADER
  • 65% of active investors said they are bullish about the current market in a recent E*Trade survey.
  • Meanwhile, the number of investors who said inflation is a top concern skyrocketed from the previous survey.
  • Inflation data released Tuesday showed prices increased more than expected in June.
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A small survey from E*Trade reveals that investors are growing more optimistic about the stock market, but are also significantly more concerned about inflation than they were a few months ago.

In a July survey of 898 self-directed active investors, 65% of respondents said they are “bullish” about the current market. That’s up from 61% in the previous quarter’s survey and marks a three-year high.

Meanwhile, concerns about inflation skyrocketed 21 percentage points from the previous survey, with 35% of respondents selecting inflation as one the top two risks they see to their portfolios. Market volatility (27%), coronavirus (23%), and a recession (17%) followed behind.

In the previous quarter’s survey, only 14% of respondents selected inflation as one of the top two portfolio risks.

On Tuesday, inflation data reflected in the Consumer Price Index showed that prices roses more than expected in June. CPI increased 0.9%, the largest one-month change since June 2008. Core inflation has now exceeded 0.7% for three consecutive months, though many on Wall Street and the Federal Reserve insist that inflationary pressures will be transitory.

“The headline CPI numbers have shock value, for sure; however, once you realize that a third of the increase is used car prices, the transitory picture becomes more clear. Inflation is rising, but things are well behaved and have not changed materially,” said Jamie Cox, managing partner for Harris Financial Group.

The survey was conducted from July 1-9 2021 among an online US sample of 898 self-directed active investors who manage at least $10,000 in an online brokerage account. The survey has a margin of error of ±3.20 percent at the 95 percent confidence level. It was fielded and administered by Dynata.

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The S&P 500 is vulnerable to a correction of up to 15% with tech-stock valuations at dot-com bubble levels, Morgan Stanley says

Trader worried
  • The odds of a 15% stock market correction are rising, according to Morgan Stanley Wealth Management’s Lisa Shalett.
  • The CIO noted that technology stocks that dominate the S&P 500 are at levels not seen since the peak of the dot-com bubble.
  • The tech sector’s profitability and earnings are vulnerable and could pose a risk to the broader market, she said.
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The odds of a stock market correction of up to 15% are rising as lofty technology stock valuations leave the broader market vulnerable, according to Morgan Stanley Wealth Management’s chief investment officer.

In a Monday note, Lisa Shalett highlighted how low rates have helped prop up tech stocks to dot-com era valuations. The price to sales ratio of the technology sector is at a level not seen since the peak of the dot-com bubble in 2000, she said.

In addition, the tech sector now makes up a much larger weight in the S&P 500 than in 2000, and has subsequently driven the price to sales ratio of the benchmark index to a level 50% higher than it has ever been.

“The problem with this setup is that tech sector profitability and earnings are vulnerable,” said Shalett. “While secular growth trends may support resilience against small changes in economic growth, the sector now faces unprecedented headwinds from rising input costs, a weaker US dollar, fiercer competition, higher taxes, stricter regulations and customer backlash.”

If those headwinds come to fruition for the technology sector, the broader market will be at risk.

She noted that markets tend to be strongest when they are broad based and there is a consensus narrative around what could go wrong in terms of economic outcomes, policy, geopolitics, and regulation.

“As we have noted for the past two months, the market continues to grind to all-time highs on narrowing breadth, while the narrative has also grown increasingly muddled. Thus, the risks of a correction are rising,” she said.

The chief investment officer of wealth management told clients to focus on stock-picking using earnings fundamentals. She also said investors could consider adding to financials stocks as a value-oriented hedge to rising rates.

price to sales ratio chart
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Legendary investor Bill Miller thinks the stock market looks fairly valued – and bitcoin’s use as a store of value is an open question

Bill Miller
  • Bill Miller said the stock market looks fairly valued, and investors are mostly optimistic.
  • Fund managers should be able to find “plenty of names to fill our portfolios,” he said.
  • Bitcoin’s use as a store of value is an open question driving strong debate, the billionaire said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Despite predictions for a market crash from other top investors, the stock market looks fairly valued, famed stock picker Bill Miller said in his latest letter to fund clients.

The star investor, whose flagship fund beat the market for 15 years straight, but tumbled 55% in 2008, said he found it curious that investors like Michael Burry, Jeremy Grantham, Leon Cooperman, and Stanley Druckenmiller are predicting an epic market crash because “we had one only 15 months ago.”

Economic turmoil and anxiety over the effects of the COVID-19 crisis saw the market decline the most in history during March 2020 before it kicked off a remarkable recovery, he said.

“The market looks broadly fairly valued to me, with most stocks priced to provide a market rate of return plus or minus a few percent,” he added. “There does appear to be considerable optimism among individual investors about their expected returns from stocks.”

For Miller, factors including a 7% growth estimate, higher expectations of company earnings, and a rise in the net worth of US households are all adding to the recovery story. The only point of contention is the outlook for inflation.

He said that while prices are broadly rising across sectors at the fastest pace in decades, the pandemic-driven boom in certain commodities like lumber is cooling off.

He also thinks fund managers should be able to “find plenty of names to fill our portfolios and so remain fully invested.”

The billionaire, whose bitcoin holdings are worth more than his Amazon stock, also gave his take on the outlook for the cryptocurrency, which is currently holding between $32,000 and $36,000 per coin.

“Bitcoin was born out of the 2008 crisis and was designed to be free of government control and manipulation, to be the ultimate in an inflation proof asset,” he said. “It is an open question if it will be an enduring store of value, with many strong opinions on both sides.”

Miller began buying bitcoin when it cost $200-300. It was last trading at $33,237 per coin as of 4:00 a.m ET on Tuesday, a decline of about 41% in the past three months, but still up nearly 260% in a year.

Read More: These 5 stocks are ripe for a short squeeze after surging in popularity this past month, according to Fintel. 2 even have the meme-friendly appeal of AMC and GameStop.

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