FINSUM

FINSUM

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(New York)

Morgan Stanley says the big gains in travel stocks are way overblown and will likely prove dangerous to investors. Carnival, Royal Caribbean, and Norwegian have all seen their shares rise in the double digits recently as investors have grown increasingly optimistic about their prospects and their cash reserves. However, Morgan Stanley threw cold water on those sentiments, saying “The cruise industry will take longer than almost any other form of travel to return to normal” as it downgraded the stocks to Underweight (two of them were already Underweight). UBS also pointed out that there will likely be no meaningful cruise activity until next year.


FINSUM: Even once cruises get running again, all it will take is one minor flourish of COVID—and the associated news cycle—for the whole sector to freeze up again. Too risky to invest in at this point.

Tuesday, 02 June 2020 16:21

Citi Warns Markets to Tumble

(New York)

In a recommendation that speaks volumes to clients about the bank’s position on the markets, Citi put out a note to corporate clients this week which instructs them to tap markets for as much funding as they can get right now because the market is totally unrealistic. According to the co-head of investment banking at Citi, “We definitely feel that the markets are way ahead of reality. We really are telling every client to tap the market if they can because we think the pricing now couldn’t get any better”. He continued, “Markets are pricing a V [shaped recovery], everyone’s coming back to work, and this is going to be fine … I don’t think it’s going to be that easy quite frankly”.


FINSUM:A V-shaped recovery is highly unlikely at this point. We think the Nasdaq being where it is isn’t illogical because of how many of its constituents benefit from COVID. But for everyone else, this level of optimism seems disconnected from reality.

Tuesday, 02 June 2020 16:21

Bears are Driving This Rally

(New York)

Don’t be fooled by this rally. Many research analysts, including those at Citi, say that this big rise in markets is not being driven by bulls, but by bears. One of the odd parts of these gains has been that money has been continuously flowing out of equity funds since March, but prices have risen despite that. The reason why may be that instead of bulls buying stocks, the gains have been driven by short-sellers buying back short positions they opened at the start of COVID.


FINSUM: This is good, simple analysis from Citi. Their additional comment could not have summed it up better: “From here, a move higher will need new longs and inflows”.

Tuesday, 02 June 2020 16:20

Why Protests Don’t Rattle Markets

(New York)

For the better part of a decade now, major socio-political disruptions never seem to rattle markets. Think back to Occupy Wall Street, the events in Hong Kong over the last year, or the protests in the US over the last week. The question is why? The main reason is that historically speaking—think the entire 1960s and up through the 1992 riots—markets and the economy were never particularly affected by social unrest in the months following big social disruptions/protest.


FINSUM: Essentially the argument here is that there is no precedent for needing to worry about social unrest. That approach only makes sense until protests do cause a big problem.

Monday, 01 June 2020 13:49

Goldman Says this Rally is Over

(New York)

Goldman Sachs put out a pretty serious statement today. The bank said the surprising and “unloved” rally since stocks bottomed in March will not continue. The bank thinks that the market has set very high expectations for the recovery, and that waters are currently troubled with China. Furthermore, the huge gains have largely been driven by 5 stocks, and their needs to be much broader-based price increases for the market to rise. This will be tricky because the other 495 stocks in the index are more economically-sensitive. “Broader participation in the rally will be needed for the aggregate S&P 500 index to climb meaningfully higher. The modest upside for the largest stocks means the remaining 495 constituents will need to rally to lift the aggregate index”, said the bank.


FINSUM: This makes complete and total sense and helps explain why the rally has slowed in recent weeks.

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