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Investor bullishness is lowest in a year even as the stock market nears record highs, Bank of America survey finds

US stock trader Wall Street stock exchange woman
Traders have been cheered by earnings but are still concerned about inflation.
  • Even as stocks near record highs, investors remain skeptical, according to a survey from Bank of America.
  • Investor bullishness is sitting at a 1-year low amid concerns of rising inflation and supply chain disruptions.
  • But third-quarter earnings are beating estimates and the S&P 500 is just 1% away from record highs.
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Investors are skeptical of an October rally that has seen the S&P 500 recover from a 5% decline and near record-highs, according to Bank of America's fund manager survey.

The survey found bullish sentiment currently sits at a one-year low while cash levels have jumped to a one-year high amid ongoing concerns about rising inflation and supply chain disruptions.

The bearish investor sentiment readings from BofA echoes other indicators that have displayed depressed bullishness among investors in recent weeks. Both the CNN Fear and Greed Index and AAII sentiment readings were at subdued levels earlier this month. Additionally, Google search trends for "Dow Jones" continues to decline, which typically means consumer confidence is on the rise, according to DataTrek.

According to the BofA survey, the biggest risks the market faces are inflation, China's ongoing regulatory crackdown, COVID-19, and the Fed tapering its monthly bond purchasing program, among others. The survey found that the most crowded trades among investors include long technology stocks, long ESG, and short China and emerging markets.

While bullish sentiment is down for stocks, investors are still putting their cash to work in areas like commodities, the survey found. Commodities are often viewed as a reliable inflationary hedge among investors, which remains top of mind.

Finally, the survey found that most investors expect at least one Fed interest rate increase next year, even as the Fed dot plot leans closer to 2023 for the start of its interest rate hike plans.

The bearish investor sentiment is ultimately a buy signal for contrarian investors, as it can often represent fuel for stocks to climb a wall of worry as fears dissipate, favorable seasonality begins to pick up during the last three months of the year, and skeptical investors throw in the towel and buy.

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‘Big Short’ investor Michael Burry says he is no longer short Tesla stock

Michael Burry with Elon Musk
Michael Burry and Elon Musk.

Michael Burry's Scion Asset Management is no longer short Tesla stock via puts, according to a Friday report from CNBC.

Burry told CNBC by e-mail that the media had blown his Tesla short bet out of proportion and that it was just a trade.

"No, it was a trade," Burry told CNBC when asked if he was still short Tesla. "The options bets were extremely asymmetric, and the media was off by orders of magnitude."

At the end of the first quarter, Scion Asset Management revealed a 800,000 put position in Tesla worth $534 million at the time, according to a 13F filing. By the end of the second quarter, that position had ballooned to more than 1 million Tesla puts worth $731 million at the time.

A put option gives its holder the right to sell shares at a certain strike price set in the future. If the stock falls below the strike price before expiration, the value of the put will increase.

Shares of Tesla are up 24% year-to-date and recently reclaimed the $800 price level following a strong third-quarter delivery number from the electric vehicle manufacturer.

Tesla's rise in 2021 makes it less likely that Burry scored a profit on the put position, but the stock did experience a near-40% decline from its record high as growth stocks fell out of favor with investors amid a resurgence in cyclical stocks earlier this year.

Additionally, not knowing the strike price or expiration date of Burry's puts makes it impossible to gauge whether the position turned out to be profitable or not.

Burry has previously called Tesla's valuation of more than $800 billion "ridiculous" and told CEO Elon Musk over Twitter that he should raise more capital and sell stock to take advantage of such high prices.

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Bitcoin futures premium doubles ahead of SEC’s potential approval of an ETF next week

Bitcoin
Bitcoin
  • Bitcoin futures premium has doubled this month as the SEC rules on the potential of approval of several ETFs.
  • SEC Chairman has recently voiced his support for bitcoin ETFs that hold futures contracts rather than directly holding bitcoin.
  • The SEC is set to either approve, deny, or delay bitcoin ETF proposals from four firms over the next two weeks.
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The premium tied to bitcoin futures contracts has doubled this month as investors anticipate the SEC's potential approval of several bitcoin ETFs over the next two weeks.

The SEC is set to either approve, deny, or delay bitcoin ETF proposals from ProShares, Valkyrie Investments, Invesco, and VanEck, which were all submitted to the regulatory agency in August.

While still wary of a pure bitcoin ETF due to concerns for potential fraud, SEC Chairman Gary Gensler has voiced his support in recent weeks for a bitcoin ETF that buys underlying futures contracts on the cryptocurrency rather than directly buying bitcoin itself.

Since Gensler has made clear his thoughts on the possibility of bitcoin futures-based ETF, several issuers have submitted new ETF applications that would utilize that same approach, including Cathie Wood's ARK Invest.

With approval of a bitcoin futures ETF looking more likely than ever, the annualized premium of CME bitcoin futures prices over bitcoin's spot value was 15%, compared to an average of 7.7% over the first nine months of the year, according to the Wall Street Journal.

Given that there could very soon be a surge in demand for bitcoin futures contracts due to the onslaught of new ETFs, the Chicago Mercantile Exchange is planning to raise the limit on the number of bitcoin futures contacts a single firm can hold.

The SEC also seems to be ramping up education about bitcoin futures contracts ahead of their decision on the ETFs later this month. On Thursday, the SEC Investor Education Twitter account shared a link to more information on bitcoin futures and said, "Before investing in a fund that holds Bitcoin futures contracts, make sure you carefully weigh the potential risks and benefits."

Whichever firm receives approval for the first bitcoin futures-based ETF could see a significant first-mover advantage as investors seek exposure to bitcoin in their traditional brokerage and retirement accounts. Bitcoin is up more than 30% so-far in October, and is up just over 100% year-to-date.

Bitcoin price chart
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US stocks fall as higher energy prices collide with lowered growth forecasts

Trader NYSE
A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 9, 2020. REUTERS/Bryan R Smith
  • US stocks closed lower on Monday as fears of rising oil prices and slower growth hit investors.
  • Rising prices and slower growth are the prime ingredients of stagflation, which has historically been a poor environment for stock returns.
  • Since 1960, periods of rising inflation and weak GDP growth led to a median S&P 500 quarterly return of -2.1%, according to Goldman Sachs.
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US stocks closed lower on Monday, erasing early morning gains as investors grapple with a continued rise in inflationary pressures and the outlook for slower economic growth.

Energy prices continued their rise, with oil rising to a seven-year high above $80 per barrel as an ongoing supply crunch overseas helps boost prices for both oil and natural gas.

Goldman Sachs cut its US GDP forecast for the third month in a row due to an ongoing economic drag from the COVID-19 delta variant and the global semiconductor crunch.

Rising prices and slower economic growth are the necessary ingredients for stagflation, which has historically led to a weak median quarterly S&P 500 return of -2.1%, according to Goldman.

Here's where US indexes stood at the 4:00 p.m. ET close on Monday:

Crypto mining manufacturer Bitmain said it will stop shipping its equipment to China following the government's crackdown on cryptocurrency mining.

Ether co-founder Vitalik Buterin said "shame on bitcoin maximalists" who support El Salvador's president in forcing businesses to accept the cryptocurrency.

JPMorgan CEO Jamie Dimon called bitcoin "worthless" at a conference on Monday and questioned its 21 million fixed supply.

SoFi surged as much as 14% after Morgan Stanley initiated the fintech company with an "overweight" rating and said the stock could surge 54% from Friday's close.

Wedbush reiterated its bullish view on cybersecurity provider Palo Alto Networks, arguing the stock could rise 22% from current levels as it sees increased cyber security spending by the government.

Bank of America said Starbucks is poised to surge 21% as its loyalty rewards program drives growth and protects the coffee retailer from competition.

West Texas Intermediate crude oil rose as much as 1.85%, to $80.82 per barrel. Brent crude, oil's international benchmark, jumped 1.61%, to $83.72 per barrel.

Gold fell as much as 0.14%, to $1,754.90 per ounce.

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Jamie Dimon calls bitcoin ‘worthless’ and questions its 21 million supply cap

jamie dimon jpmorgan
  • Jamie Dimon said he believes bitcoin is "worthless."
  • The CEO of JPMorgan said on Monday that if his clients want access to bitcoin, "we can give them legitimate, as clean as possible access."
  • Dimon also questioned the 21 million fixed supply of bitcoin at the Institute of International Finance event.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

JPMorgan CEO Jamie Dimon still isn't buying into the hype surrounding bitcoin, saying at an event on Monday that he believes the popular cryptocurrency is "worthless."

But Dimon's skepticism hasn't stopped his his bank from doing business with clients that want access to the cryptocurrency.

"We can't custody it [bitcoin], but we can give [clients] legitimate, as clean as possible access," Dimon said at the Institute of International Finance event on Monday.

While Dimon may not believe in the value of bitcoin, investors have been pouring in over the last few weeks, lending the cryptocurrency a $1.1 trillion valuation as of Monday.

Part of Dimon's skepticism is around supply, and whether the total number of bitcoins that can exist is in fact capped at 21 million. The finite supply is often cited as a reason to be bullish on bitcoin, as no more can be created once all the coins are mined in about 100 years. This is a common argument for bitcoin's appeal as an inflation hedge.

"I'll just challenge the group to one other thing. How do you know it ends at 21 million [bitcoins]? You all read algorithms? You guys all believe that? I don't know, I've always been a skeptic of stuff like that," Dimon said, according to Brian Cheung of Yahoo Finance.

Dimon rightly noted that while his disbelief in bitcoin may be at odds with many in the market, including JPMorgan's customers (and even some of its employees), that's what makes a market. "Our clients are adults, they disagree, that's what makes markets," Dimon said.

It should come as no surprise to investors that Dimon is bearish on bitcoin, having previously expressed that he expects regulation to hit the crypto sector especially hard following ransomware attack payments enabled by the digital currencies.

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Nio jumps after Goldman Sachs upgrades EV maker to ‘buy’ on potential of new ET7 vehicle

Elias Holdenried Nio ET7
  • Nio jumped 5% on Thursday after the Chinese EV maker was upgraded to "Buy" at Goldman Sachs.
  • The bank said Nio could surge 66% on the strategic potential of its upcoming ET7 vehicle.
  • "We believe Nio provides the visibility of strong volume expansion in the next 6 months, driven by the upcoming ET7," Goldman said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Nio surged as much as 5% on Thursday after it received an upgrade to "buy" at Goldman Sachs with a $56 price target, representing potential upside of 66% from Wednesday's close.

Goldman made the upgrade after shares of Nio shed nearly $30 billion in market value amid ongoing regulatory pressures in China, supply chain constraints, and a fatal accident that took place in one of Nio's vehicle when the Navigate On Pilot system was turned on.

But Nio should see renewed upside as the company begins delivering its premium ET7 sedan model early next year. The release of the ET7 could spark demand for Nio's vehicles and cement the company as a leader in the premium EV market.

"We believe Nio provides the visibility of strong volume expansion in the next six months, driven by the upcoming ET7, the Nio Day 2021 in Suzhou, the accelerating battery as a service build-out, and the entrance into Norway," Goldman explained.

The ET7 is an important launch for Nio for four key reasons, according to Goldman.

1. The product design of the ET7 is strategic, as it mirrors full-size premium sedans from Mercedes and BMW with a comparable price point. Goldman notes that the Mercedes S-class and BMW 7 series have scaled to more than 10,000 vehicle sales per month in China. Nio's ET7 could scale to similar levels, according to Goldman.

2. "The price point makes ET7 China's most expensive car model ever launched by domestic manufacturers, strengthening Nio's brand equity in the premium space," Goldman said.

3. Nio is offering a battery as a service plan, which lowers the purchase price of the car by allowing customers to lease the batteries that power the car.

4. The continued evolution of Nio's autonomous driving technology will be on full display in the upcoming ET7, which sports 33 high-performance sensors including both LiDAR and cameras. These sensors will enable forward collision warning, automatic emergency braking, lane keeping assist, and an automatic parking system.

But risks are abound for Nio, Goldman said, highlighting the intensifying competition in the EV space, potential production woes, and higher than expected prices that could limit volume.

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Evergrande stock has soared 35% in the past week as the embattled property developer sells assets to pay its debts

Evergrande China construction
Evergrande is China's second-biggest property developer.

China Evergrande Group stock has soared as much as 35% since the world's most indebted property developer shocked markets last week with its unfolding debt crisis.

Shares of the Hong-Kong listed company surged from a low of HK$2.27 last week to HK$3.07 on Wednesday. The thinly traded OTC listed stock for Evergrande soared as much as 46% on Wednesday, and is up as much 63% in the past week.

The company has more than $300 billion in liabilities, and after it missed interest payments on several bank notes last week, its overall health has been called into question since it has billions in debt coming due in the next year.

But the company is taking steps to raise cash and meet its debt obligations, despite several missed payments that are likely being renegotiated with creditors. Evergrande plans to raise $1.5 billion by selling its stake in a Chinese bank to a state-owned enterprise, the company said Wednesday.

That follows reports that China is urging property developers and state-owned-enterprises to buy assets from Evergrande so it can avoid a massive default. A potential default would likely call into question the overall health of China's real estate market, which represents about a quarter of its overall economy.

Evergrande's debt has helped the company build more than 1,300 real estate projects in over 280 Chinese cities. The company employs 200,000 employees, and its massive construction projects indirectly creates more than 3.8 million jobs per year, its website said.

But after decades of growth, mostly in speculative real estate assets that have low occupancy rates and are sometimes are not even fully completed, the bill is coming due.

Despite the sizable week-long rally, Evergrande stock is still down more than 80% from its 52-week high.

Evergrande stock price
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A former quant was charged in an $8.5 million insider trading scheme that included making more than 3,000 fraudulent trades from his wife’s brokerage account

People walking out of the SEC building US Securities and Exchange Commission
  • A former Wall Street quant analyst was charged by the SEC in an $8.5 million insider trading scheme on Thursday.
  • Sergei Polevikov allegedly placed nearly 3,000 front-running trades in his wife's brokerage account.
  • The SEC discovered the scheme by using data analysis tools to detect suspicious patterns in trading activity.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

A former Wall Street quant analyst was charged with pulling off a $8.5 million insider trading scheme by placing nearly 3,000 trades in his wife's brokerage account, according to a Thursday complaint from the SEC.

Sergei Polevikov allegedly utilized real-time, non-public information about the timing and size of his employers' security trades to front-run the orders and make a quick profit.

The defendant would rarely hold onto the positions for more than a day, and was able to capitalize on small-time movements in stocks at the expense of his employer's clients.

Polevikov, 48, of Port Washington, New York, formerly worked as a senior quantitative analyst at OppenheimerFunds. He was arrested on Wednesday on charges of securities, wire, and investment company fraud.

In one example of the illicit trades, the SEC says Polevikov purchased 400,000 shares of stock in a Brazilian bank ahead of a nearly 8 million-share purchase made by OppenheimerFunds. The defendant then sold the stock for a near $100,000 profit.

Polevikov concealed his alleged trading scheme by placing the front-running trades in his wife's investment account, who uses a different last name. The SEC utilized data analysis tools to detect suspicious trading activity patterns, "such as improbably successful trading across different securities over time," the regulator said.

Polevikov's lawyer Brooke Cucinella said, "the government has it wrong" and that her defendant plans to fight the charges. Polevikov's bail was set at $1.5 million, and he faces up to 20 years in prison. Polevikov's wife, Maryna Arystava, was sued by the SEC as the agency seeks the return of the alleged illicit profits, along with civil penalties.

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Evergrande’s debt crisis has jolted the stock market. Here’s why everyone’s suddenly worrying about China’s 2nd-largest property developer.

NYSE trader
  • The rapid growth of Evergrande in the past decade has been fueled by an unsustainable debt burden of more than $300 billion.
  • Now China's second-largest property developer is showing signs of financial distress and may not be able to make upcoming interest payments.
  • Here's everything you need to know about the indebted property developer that is sending shockwaves across global markets.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

If you've ever seen a picture of a massive city in China with soaring skyscrapers and apartment buildings that were virtually empty, there's a good chance those buildings were constructed by Evergrande.

China's second largest property developer has helped fuel a decades-long boom in the Chinese real estate market since its founding in 1996, which in turn has helped fuel China's growing economy.

But much of that growth has been fueled by an unsustainable surge in debt, and fears of a looming default by Evergrande sent global markets tumbling on Monday, with the S&P 500 down as much as 2.4% and the Dow Jones at one point down more than 800 points. Meanwhile, bitcoin and ether dropped more than 5% as risk-off sentiment spread to crypto.

Evergrande has more than $305 billion in liabilities, making it the most indebted company in the world. That debt has helped buy the company more than 1,300 real estate projects in over 280 Chinese cities. The company employs 200,000 employees, and its massive construction projects indirectly creates more than 3.8 million jobs per year, its website said.

But after decades of growth, mostly in speculative real estate assets that have low occupancy rates and are sometimes not even fully completed, the bill is coming due.

The company has failed to pay many of its suppliers, and to help stave off the inevitable, Evergrande incentivized many of its employees to invest in the company in exchange for their annual bonuses. The company indicated twice over the past week that it may be unable to meet an upcoming interest payment due later this week and that it could default on its debts.

The deteriorating financial condition of Evergrande has led to its stock falling nearly 80% year-to-date, and its bonds traded at historic lows in the wake of Evergrande's revelation of potential insolvency.

The writing about Evergrande's potential debt crisis has been on the wall for years. In 2012, former short-seller Andrew Left wrote a 57-page report that alleged Evergrande used shady accounting practices to mask that it was on the verge of insolvency. Left was ultimately issued a five-year ban in trading Hong Kong securities by regulators due to his report.

Bank of America said in a July 23 note that, "Evergrande ... has been hit with a number of bad headlines in the past couple of weeks, including the refusal of banks to offer mortgages to potential buyers of its properties. Its bonds have slumped into the mid-50s on price, implying a strong likelihood of a restructuring."

Given that the slow drip of bad news from Evergrande was already on the market's radar, it may be perplexing to some investors as to why stocks are selling off now.

That's likely due to the heightened uncertainty as to whether Evergrande's debt crisis represents the first domino to fall in a potentially systemic contagion that leads to more busted property developers, unpaid suppliers, and financially ruined lenders and investors, similar to the US housing crash that sparked the Great Recession of 2008.

While some analysts don't believe the Evergrande debt crisis will be China's "Lehman Brothers moment," others have speculated that Xi Jinping's government will step in to aid the company and prevent its default.

But as Andrew Left told Institutional Investor last month, that may not happen.

"I don't know what happened, but finally this past week, or month, he ran out of friends who are going to refinance his debt, and the debt became way too much," Left said of Evergrande's Chairman Hui Ka Yan. "In China, the big talk is, 'he's not too big to fail."

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US stocks end week lower amid 5-day losing streak as growth concerns persist

Trader NYSE

US stocks closed lower on Friday as concerns about future economic growth helped drive a five-day losing streak for the S&P 500.

A weak August jobs report and comments from the Federal Reserve's August beige book suggest investors continue to worry about the ongoing surge of the COVID-19 delta variant and its impact on the economy. A weaker economic growth outlook has investors questioning when the Federal Reserve may begin to wind down its monthly $120 billion bond purchases.

A near 4% sell-off in shares of Apple helped drag down the broader markets throughout Friday's trading session, as a judge ruled that the company can't restrict app-developers from including external links to circumvent Apple's 30% app store commissions.

Here's where US indexes stood at the 4:00 p.m. ET close on Friday:

Shares of buy now, pay later provider Affirm soared as much as 22% on Friday after the company reported better-than-expected revenue for its fiscal fourth-quarter, and raised revenue guidance for its fiscal year of 2022.

President Joe Biden had a more than hour-long conversation with Chinese President Xi Jinping on Friday, as hope builds that trade relations between the two countries will be improved.

Democratic senators Ron Wyden and Sherrod Brown introduced a bill that would implement a 2% tax on corporate stock buybacks. If passed, the tax is expected to raise more than $100 billion over the next decade and help pay for Democrat's $3.5 trillion spending plans.

Cathie Wood's Ark Invest sold more than $100 million worth of Tesla this week, according to daily trade updates. The sales come even as Ark believes Tesla could soar 300% from current levels.

Harvard said the university's $42 billion endowment would end direct investments in fossil fuel and oil exploration companies.

Oil prices jumped. West Texas Intermediate crude was up as much as 2.42%, to $69.79 per barrel. Brent crude, oil's international benchmark, jumped 2.18%, to $73.01 per barrel.

Gold fell as much as 0.44%, to $1,792.00 per ounce.

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