stocks

Market News

The Dark Side of Buybacks: Examining Wealth Inequality and Innovation Suppression

/ August 25, 2023

“Reevaluating Stock Buybacks: A Force behind Wealth Inequality and Innovation Suppression?” An ongoing debate questions the role of stock buybacks in perpetuating wealth inequality and stifling innovation within the U.S. economy. Should there be a definitive ban on these practices, especially when executed as open-market repurchases? According to William Lazonick, an esteetock marketmed figure hailing from the University of Massachusetts Lowell and also the President of the Academic-Industry Research Network, the answer is a resounding “yes.” Lazonick, a long-standing critic of corporate stock buybacks, recently unveiled his book “Investing in Innovation: Confronting Predatory Value Extraction in the U.S. Corporation,” in which he contends that these buybacks form a critical component of what he labels as “predatory value extraction.” The concept of predatory value extraction centers on the idea that senior executives, Wall Street financiers, and hedge fund managers manage to extract a disproportionately larger amount of value from corporations where they hold shares, in comparison to their actual contributions to value creation within those organizations. However, the ramifications extend beyond this. These stock buybacks have inadvertently rendered American corporations more susceptible to foreign competitors, particularly in sectors critical to national security and productivity, like aviation, communications, semiconductors, and alternative energy. This vulnerability stems from businesses opting to allocate profits to buybacks instead of investing in innovation and infrastructure. As a result, these companies are compelled to procure essential technologies from foreign rivals, predominantly in Asia. Before the widespread adoption of buybacks in the 1980s, companies typically reinvested the bulk of their profits to foster growth or reward employees for their contributions to value creation. This narrative shifted drastically as buybacks gained momentum, becoming a popular strategy for elevating share prices by reducing the number of outstanding shares. Between 2012 and 2021, the 474 firms listed in the S&P 500 (as of January 2022) channeled a staggering $5.7 trillion into the stock market through buybacks, equating to 55% of their collective net income. Additionally, another $4.2 trillion was distributed as dividends, consuming an additional 41% of net income. While dividends offer benefits to all shareholders, buybacks predominantly benefit those selling shares, including senior managers whose compensation often involves stock holdings and hedge fund managers aiming to capitalize on market timing. Lazonick’s book offers various examples illustrating the shift from a strategy focused on “retain and invest” to “dominate and distribute,” and its consequences for the workforce. The table below highlights the top 20 purchasers of their own stock from 2010 to 2019, along with distributions made during pandemic years. Eleven companies followed the “dominate and distribute” approach before the pandemic, encompassing major players like Apple, Oracle, Microsoft, Cisco, Walmart, Intel, Home Depot, Johnson & Johnson, Amgen, Qualcomm, and Gilead. These companies utilized profits from their commanding market positions to bolster stock prices. On the other hand, seven firms including Exxon Mobil, IBM, Procter & Gamble, General Electric, Merck, McDonald’s, and Boeing pursued a “downsize and distribute” strategy, allocating funds to shareholders as they downsized their workforces. The remaining two, Pfizer and Disney, ceased buybacks in 2019 to return to a “retain and invest” strategy. Lazonick underscores that companies such as Disney, Home Depot, McDonald’s, Procter & Gamble, and Walmart employ a significant number of low-wage workers. These workers could potentially benefit from substantial pay raises funded by capital allocated to buybacks. Elevating wages and benefits for low-paid workers at profitable firms can have a ripple effect, boosting incomes across the broader economy. Even the pharmaceutical sector, represented by companies like Amgen, Gilead Sciences, Johnson & Johnson, Merck, and Pfizer, faces scrutiny. Despite advocating for high drug prices to support research and development, these firms distributed a significant 110% of their net income to shareholders and share sellers between 2012 and 2021. Buybacks alone accounted for 55% of net income, surpassing other sectors. Lazonick also highlights the technology sector, using Cisco Systems as an example of a company favoring buybacks over investment in learning that fuels innovative communication-infrastructure products. Since 2001, Cisco’s management has allocated a staggering $159.7 billion to buybacks, equivalent to 93% of net income. Concurrently, the U.S. has fallen behind global competitors in areas like 5G and the Internet of Things. Apple’s trajectory follows a similar narrative. Initially relying on Samsung Electronics to fabricate chips for iPhones, Apple shifted its outsourcing to TSMC, catalyzing the latter’s ascent to prominence in advanced nanometer chip fabrication. According to Lazonick, five steps are crucial to curbing predatory value extraction: The implications are substantial. An Oxfam report revealed that by 2022, inflation had eroded the earnings value for 32% of the U.S. labor force, leaving them with hourly wages of $15 or less. In his 2022 State of the Union address, President Joe Biden proposed a 4% tax on buybacks. However, Lazonick argues that this is insufficient. If the administration opts for taxation instead of a ban, Lazonick suggests a 40% surcharge, accompanied by a prominent message on corporate repurchasers’ websites: “STOCK BUYBACKS DESTROY THE MIDDLE CLASS.” John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

stock market
Market News

Nasdaq Futures React to Nvidia Earnings with a Jump; Dow Futures Experience Dip

/ August 24, 2023

In the early hours of Thursday, U.S. stock index futures demonstrated a positive trend, led by Nasdaq futures, as Nvidia’s exceptional quarterly earnings performance exceeded high expectations. In contrast, Dow futures experienced a slight decline due to a drop in Boeing shares. Here’s a snapshot of the current stock-index futures trading: In the trading session of the previous day, the Dow Jones Industrial Average registered a gain of 184 points, marking a 0.54% increase to reach 34,473. The S&P 500 saw a rise of 48 points, translating to a 1.1% increase and reaching 4436. Meanwhile, the Nasdaq Composite gained 215 points, presenting a notable 1.59% surge and reaching 13,721. Key market dynamics include: With the Jackson Hole central bankers’ economic policy symposium commencing on Thursday, the focal point remains on the upcoming speech by Fed Chair Jerome Powell on Friday. In addition, investors were privy to a fresh batch of U.S. economic data on Thursday, including weekly jobless benefit claims numbers. This data revealed a decline of 10,000 claims, reaching a three-week low of 230,000, providing further evidence of a robust labor market. Data on durable-goods orders for July indicated a 0.5% increase, excluding specific sectors like transportation and autos. Notable companies in focus include: John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

U.S. Stock Futures Inch Upward as Bond Yields Dip; Nvidia Earnings Awaited

/ August 23, 2023

On Wednesday, U.S. stock futures showed a slight upward movement, coinciding with a decline in bond yields. All eyes were on Nvidia Corp. as investors eagerly awaited the company’s earnings report. Nvidia, a leading player in the artificial intelligence software realm, was scheduled to release its results after the market’s closing. Key Highlights: Market Dynamics: The uptick in stock futures coincided with a reduction in bond yields, both in Europe and the U.S. This was triggered by news of a larger-than-expected contraction in eurozone economic activity, leading to a 33-month low. However, the day’s primary focus was on Nvidia’s (NVDA, -2.77%) earnings outcome, eagerly anticipated after the market’s close. With Nvidia’s shares having surged by 212% in the current year, in contrast to the S&P 500’s gain of 14.3%, the company epitomized the enthusiasm surrounding major tech stocks and the excitement around artificial intelligence, both of which had been instrumental in driving up equity indices for much of 2023. The reception of Nvidia’s financial results and projections was expected to significantly shape the short-term market sentiment. Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, commented, “Investors will focus on whether Nvidia’s Q2 sales meet the $11 billion estimate. Anything less than absolutely fantastic could trigger a sharp downside correction in Nvidia’s stock price which rallied 345% since the October dip.” Traders were anticipating a potential 10% movement in Nvidia’s shares for the remainder of the week, as indicated by the pricing of the company’s stock options. Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, noted, “A jolt [of] volatility is set to be sparked by the chip giant’s numbers and outlook.” Economic Updates and Corporate Focus: The day’s U.S. economic updates included the S&P services and manufacturing PMIs for August, set for release at 9:45 a.m. Eastern, followed by the July new home sales report at 10 a.m. Key Companies in the Limelight: John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

stock market
Market News

S&P 500’s Monthly Slide: 2023’s Deepest Loss Looms as Yields Continue to Rise

/ August 21, 2023

Investors may be confronted with the scenario where the Federal Reserve decides to keep interest rates elevated for an extended duration. As a result, there has been a notable increase in Treasury yields, leading to the S&P 500 index enduring its most substantial monthly drop in 2023. During a phone interview, Scott Chronert, an equity strategist at Citigroup, clarified that the yield on the 10-year Treasury note exceeded the trading range of 3.5% – 4% in August. This rise had a negative impact on stock market valuations, as it went against the established pattern that had been observed throughout the year. This month, investors in the American stock market are witnessing a downturn in their investments as they anxiously await Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium in Wyoming, which is planned for Friday. Furthermore, they are dealing with a rise in yields throughout August and monitoring the possible consequences of China’s economic difficulties, as it is the second largest economy globally. Investors were taken aback this month when the return on the 10-year treasury note BX:TMUBMUSD10Y, which had been increasing, reached its highest point since 2007 despite the Federal Reserve’s efforts to gradually raise interest rates due to the decreasing inflation in the United States. During a phone interview, Rick Rieder, the chief investment officer of global fixed income at BlackRock and head of the firm’s global allocation investment team, pointed out the irony of interest rates going up while inflation decreased considerably in the last three and six months, as indicated by the moving averages of the consumer-price index. Based on data from Dow Jones Market Data, the U.S. stock market ended the week with mostly negative results. The S&P 500 index reported its third consecutive week of losses and is currently down by 4.8% in the month of August. This represents the largest monthly decline for the index since December, according to data provided by FactSet. Both the Nasdaq Composite COMP and Dow Jones Industrial Average DJIA concluded the week on a negative note on Friday. Similar to the S&P 500, the Nasdaq, famous for its emphasis on technology stocks, saw three consecutive weeks of decline. Rieder pointed out that investors in the stock market are concerned that the strong condition of the American economy could prompt the Federal Reserve to tighten its monetary policy even more. This worry, combined with an increase in the amount of U.S. Treasurys being circulated, appears to be adversely affecting the stock market. Rieder stated that there is a significant issuance of Treasury bills, causing a decrease in available funds, which he believes is starting to show some effects. These Treasury bills are short-term U.S. government debt that matures within a few months and have been yielding more than 5% recently. Scott Wren, a senior global market strategist at Wells Fargo Investment Institute, mentioned in a telephone conversation that his company made the decision to withdraw a portion of their funds from the stock market earlier this year. Specifically, they decreased their investments in technology stocks and chose to invest in Treasury bills instead. This strategic move allows them to take advantage of opportunities when the stock market undergoes declines. Wells Fargo has a projection that the S&P 500 index will achieve a value of 4,100 by the conclusion of 2023. Dow Jones Market Data reports that the S&P 500 closed on Friday at 4,369.71, which indicates a decline of 8.9% from its peak closing level in January 2022. Wren stated that the Federal Reserve has yet to complete its efforts to increase interest rates in order to manage ongoing core inflation. During the Jackson Hole meeting, Chair Jerome Powell may take this chance to convey to the market that the central bank is presently not contemplating reducing rates. Wren suggests that Powell might continue to emphasize a firm position by repeating the idea that the Federal Reserve has the ability to raise its benchmark rate as a means to combat inflation and achieve its goal of 2%. Chair Powell has been scheduled to deliver a speech at the Jackson Hole meeting on August 25. In a telephone interview, David Kelly, J.P. Morgan Asset Management’s chief global strategist, remarked that the current state of the U.S. economy is very strong. He also conveyed his confidence that a significant reduction in inflation can occur without causing a recession. Investors are worried that the Federal Reserve’s continuous increase in interest rates, which were previously raised to curb high inflation, could possibly cause a decline in the economy. Kelly states that in the absence of notable economic issues, it is improbable for interest rates to diminish by the end of this year. But Kelly is anticipating that the Federal Reserve could potentially begin a gradual reduction of interest rates in the spring of 2024, given that inflation continues to decrease and eventually reaches 2%. He pointed out that if the labor market starts exhibiting indications of an imminent economic decline, such as consistent monthly decreases in nonfarm payroll employment reports, the central bank would probably accelerate the pace at which they lower interest rates. Currently, 10-year Treasury yields have been consistently rising for five consecutive weeks, marking the longest streak since March. According to Dow Jones Market Data, the yields closed at 4.251% on Friday. However, they slightly decreased on Friday after reaching their highest level since November 2007 on August 17, as reported at 3 p.m. Eastern Time. Rieder from BlackRock explains that the rise in interest rates can be credited to various reasons. These encompass the greater accessibility of U.S. government debt, the impact of the Bank of Japan modifying its yield-curve control to permit its own 10-year yields to increase, and the appeal of Treasury bills which offer a favorable rate of approximately 5.5% with no credit or duration risks. Kelly mentioned that while the economy of the United States is flourishing, China’s economy is facing challenges. The property sector in China is currently encountering

stock market
Market News

Bull Market Update: Brace for Potential 10% Correction

/ August 20, 2023

Hayes Martin, a stock market strategist, has both encouraging and discouraging news for individuals with a positive outlook on the stock market. Starting with the downside, Martin anticipates that the continuous decline in the market will ultimately lead to a decrease of 8% to 13% in the market averages. (As of August, the S&P 500 index has already gone through a drop.) On the bright side, Martin assures that this upcoming decline will not mark the end of the positive market trend or the start of a negative market trend. I often count on Martin, the head of advisory company Market Extremes, for valuable information. I always make sure to give his emails my complete attention. It is important to mention that there is no professional agreement between his advisory service and my auditing firm when it comes to calculating the performance of his services. Martin sent an email in the afternoon of August 1st. In contrast to his previous emails, where he showed belief in the market’s expansion, this time he noted that the market’s internal elements were deteriorating. He acknowledged that although he doesn’t foresee a major drop, we should be prepared for a more significant temporary setback. Consequently, he recommended adopting a defensive approach in such situations. From August 1st to August 15th, there was a 3% drop in the S&P 500 SPX, whereas the Nasdaq Composite COMP experienced a decline of 4.6%. In a later email, Martin mentioned that his research shows there is still potential for further improvement in addressing this issue, with a range of 8% to 13%. However, he observed that the market’s internal factors have only slightly worsened, in contrast to the significant decline seen in previous bull-market highs. He also predicted that once this correction comes to an end, the progress is expected to continue. Considering Martin’s analysis, it is crucial to remember his previous statements from the past year and a half. For example, during the pessimistic market period in late May and early June 2022, he correctly foresaw a market rally, particularly in the technology industry, along with a possible growth ranging from 15% to 25%. The subsequent three months saw the Nasdaq Composite increase by 16.5%, proving the accuracy of his prediction. Following the conclusion of the rally, the bear market made a strong resurgence. By early October 2022, the Nasdaq erased the entire 16.5% gain it had experienced during the rally. At this point, Martin predicted a significant “reflex bounce” in the market, although he did not foresee a new bull market. This bounce would cause the market averages to rise by 10%-15%, with the technology-dominated indexes potentially seeing gains of 15-20%. The market reached its lowest point on October 12. While Martin initially did not expect a new bull market in early October and became more optimistic later on, he should be recognized for accurately predicting a powerful rally. If you trust Martin’s analysis, it would be advisable to make changes to your stock portfolios in order to adopt a more defensive approach. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Analyzing August’s Stock-Market Trends: Will the Stumble Transform into a Rout?

/ August 19, 2023

The drop in the American stock-market rally in August 2023 was anticipated. In a note on Friday morning, Tom Lee from Fundstrat stated that the S&P 500’s recent decrease of 5.6% over a 15-day period is a usual situation for August. Despite this, Lee, who is well-known for his positive outlook on the stock market, expects this decline to be temporary and connected to the month of August. In August, there are usually difficulties in the financial market, with high levels of unpredictability seen in the VIX reaching its highest point. Moreover, trading conditions tend to have low activity, particularly towards the end of the month, as the holiday season ends. The speaker states that stocks are being sold off due to several reasonable factors. These factors consist of a 50 basis point rise in the 10-year Treasury yield, causing it to reach its highest level in 15 years, the strengthening of the US dollar, and a long-awaited increase in the Cboe Volatility Index. Both the S&P 500 index and Nasdaq Composite suffered losses for the third week in a row on Friday. Additionally, the Dow Jones Industrial Average experienced a decline of 2.2% for the week. According to Lee’s definition, what conditions must be met in order for the slide to be classified as a significant decline, which is a 10% decrease leading to the S&P 500 reaching the level of 4,150? In order for the increase in yields to have a notable effect, Lee states that it would either have to present a risk of causing significant harm or require some other external disruption. Lee stated that he is not claiming that this is an impossible scenario. He gave an example to support his point, stating that if there is a sudden 10% rise in oil prices along with indications of increasing wages, it could potentially result in a larger decline in market value. The reason for this is that such factors might raise doubts among investors about the consistency of inflation reduction. Lee states that at present, inflation is not the primary worry for investors as their attention is primarily directed towards the rising bond yields, which have a detrimental impact on price-to-earnings ratios. They are also apprehensive about the prospect of a stronger U.S. economy, which could lead to the Federal Reserve implementing further interest rate hikes. Furthermore, Lee highlights the slight concerns among U.S. investors regarding weak economic data and property matters in China. Lee mentioned that there are signs in the market suggesting that stability may soon return. Firstly, he stated that the acceleration in the rate at which the 10-year yield is increasing is having a negative effect on stocks. However, it is not unusual for such abrupt increments to occur towards the end of a period when equities are being sold. He highlighted that the recent 50 basis point rise in the Treasury 10-year yield, which happened in just 21 days, is comparable to the increases in yield that were observed on September 23rd and March 2nd in the previous year. It is important to note that during those occasions, stocks reached their lowest point between 8 and 16 days later. Furthermore, the McClellan Oscillator reveals that there is currently an excess number of stocks, with a value of -50. This particular situation has only happened on 39 occasions since 1990. Lee’s analysis suggests that in 51% of these occurrences, stocks reached their lowest level within five days, while in 72% of cases, stocks reached their lowest level within 15 days. Lee proposed some dates that could hold importance for the future of the market. One of these dates is August 24th, which comes after Nvidia, a company that manufactures chips, discloses its financial performance for the second quarter. The outstanding outcomes that Nvidia achieved earlier in the year were understood to have sparked enthusiasm around artificial intelligence, ultimately causing a rise in the stocks of major technology companies. On Friday, August 25th, investors will be paying attention to Federal Reserve Chair Jerome Powell, who is scheduled to deliver a speech at the annual symposium of the Kansas City Fed in Jackson Hole, Wyoming. Lee remembered that Powell’s speech in Jackson Hole last year indicated the conclusion of a recovery for the S&P 500, resulting in a subsequent drop of 19% in stock prices over the ensuing eight weeks. He was unsure if stocks would see a 20% increase after this year’s Jackson Hole conference, but he admitted that unforeseen events could still happen. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Scroll to Top