FAANGs Aren’t What They Used to Be, So Beware of Bear-Market Boom, This Hedge Fund Manager Says

This has been some rally. S&P 500 SPX
The week started off at a seven-week high, fueled by less aggressive Fed expectations and sentiment that the earnings pessimism was over.

According to Dow Jones market data, the benchmark stock index is up 12.6% from its recent low hit MD-June, which has given its best July performance since 1939. Last week’s 4.2% pop took it through resistance at 4,000, moving above its 50-day moving average in the process. And so on.

But, naturally, some are not convinced.

With the S&P 500’s relative strength index now at 74 and in “overbought” territory, bearish short-term traders may expect a slight pullback.

And Kevin Smith, chief investment officer at hedge fund Crescat Capital, believes the problems are more than just an over-stretched momentum gauge.

“Last week looked like a short-seller dedication to large-cap tech stocks for us, and mega-cap tech stocks in particular. Crescat is not capitulating at all. There were several ‘buy-the-news’ headlines that could have marked the peak of another bear market rally,” Smith says in a note to clients.

He cites three things about the news of a really recession in recent days; Fed’s 75 basis point interest rate hike; Consistently negative real GDP prints; and “shoddy” mega-cap tech earnings.

“Yeah, it was all really bad news, but there was a short-term positioning offside on anticipation of this bad news, so there was a technical setback of short sellers,” admits Smith.

On the economy, investors are fooling themselves if they point to a strong job market as evidence of a soft landing as the Fed tightens policy.

“It is sad how many people, including policy makers, are unaware of the fact that the labor market is always a lagging indicator ahead of an economic slowdown. Because inflation is so high today, and the Fed is so behind the curve, the current period of negative real growth is very likely to be drawn out and is only just getting started,” argues Smith.

And on the big tech earnings he specifically dismisses: “Revenue, earnings, and free cash flow of all FAANG+ shares I recently reported were down drastically, and they’re all still massively valuable.. The truth is that growth stocks have traditionally underperformed in high-multivariate inflation environments. These stocks are hardly rising anymore, especially on an inflation-adjusted basis.”

FAANG stands for Facebook, Amazon AMZN,
Apple AAPL,
neflix nflx
and google (though the first and last are now listed as meta meta
and the alphabet Google
,

Source: Crescut Capital

Smith concluded that because FAANG+’s results were not nearly as strong as the market is interpreting, he is adding to his bearish bets. “We are extending our shorts in this recent short covering rally. We expect the equity bear market to resume soon as the Fed is still in tighter mode and the yield curve is now well inverted.

Market

US Equity Index Futures S&P 500 Futures es00 . are a touch softer after their recent strong run with
up 0.3% to 4,113. and Nasdaq 100 NQ00
Futures slipped 0.3% to 12,935. Dollar Index DXY
Further retreating from recent 20-year highs, down 0.4% at 105.47. 10-Year Treasury Yield BX:TMUBMUSD10Y
2.1 basis points to 2.672%.

buzz

US crude futures CL
Soft manufacturing has fallen 2.2% to $ 98.04 a barrel after the survey China And Europe Added to global growth fears.

Alibaba HK:9988
Shares in Hong Kong fell further on Monday after US regulators added the e-commerce giant to the list last week Chinese-owned companies that can be delisted,

US Wheat Futures W00
are at a five-month low after Ukraine was able to send First grain shipment from Odessa Since the invasion of Russia.

In earnings, Loews L
Releases results before market opens while Activision ATVI
and pinterest pins
Come after the closing bell.

US economic data on Monday: ISM manufacturing and construction spending for July, both at 10 a.m. Eastern

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