On Monday morning, the stock market found itself down after two straight weeks of gains on Wall Street.
One would think the crazy declines from the coronavirus outbreak was behind us, right? Well, not in the eyes of short-sellers, according to the Wall Street Journal.
These short-sellers have been and continue to bet against the market more aggressively than they have in previous years. The WSJ report: “Bets against the SPDR S&P 500 Trust, the biggest exchange-traded fund tracking the broad index, rose to $68.1 billion last week, the highest level in data going back to January 2016.”
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Jerry Braakman of First American Trust explained that his company’s recent bet against the Nasdaq-100 was because the figure was $41.7 billion in Jan 2020 and at $41.2 billion one year ago. “We’ve seen a significant bounceback in the last three weeks at levels that I think are too quick,” he added.
The WSJ also made another analysis of these short-sellers. The huge selloff began, but when worst-case scenarios started to look more unlikely, stocks rebounded. Seemingly, investors began tracking epidemiological data instead of traditional financial numbers, writes WSJ journalist Grep Ip.
That sounds ok in theory, but the danger lies in where “investors are translating less-bad incremental news into a much faster economic rebound later this year, perhaps prematurely.”
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It seems the worst-case scenarios seem to be disappearing; however, the larger picture will result in “a massive negative shock to national income,” per Carlyle Group chief economist Jason Thomas
Ip writes, “With so few precedents and still so little data, the range of scenarios for the economy is wide. Investors seem to be counting on the better ones.”
Short-sellers will disagree, however.
This piece was written by Wayne Dupree on April 20, 2020. It originally appeared in WayneDupree.com [3] and is used by permission.
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