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Earnings Announcements Continue. Short Sellers Up Their Bets.

Both the Dow Jones Industrial Average and the S&P 500 posted losses between 1 – 2%. The tech-heavy Nasdaq fared the best  posting a minor loss of – 0.18%. Investors continue to be confused about whether the worst is over for the market and the U.S. economy.

We continue to see first quarter earnings posted. 24% of S&P 500 companies have reported results to date with about 60% of those reporting beating earnings estimates. Analysts are concerned first quarter results will be fair while second quarter earnings will be much more disappointing. The third quarter is anyone’s guess.

We’re beginning to see some states gradually reopen for business. We won’t debate the soundness of such policies, but will report on their effects on the U.S. economy. Obviously, the sooner we get back to work the better for everyone. We just hope the spread of the coronavirus continues to lessen.

There has been a sharp increase in “short-selling” as reported by the Wall Street Journal. For a brief primer, long investors hope to buy low and sell at much higher prices in the future. Short sellers, on the other hand, sell first and then buy the shares back later (hoping that market prices decline).

To most investors, it’s antithesis to what we’ve all learned on how to make money in the market. But to some money managers, betting against troubled companies or industries is just another way to profit. Total short sales last week against the largest exchange-traded fund that tracks the S&P 500 rose to a total of $68.1 billion, the highest level since January 2016. At the beginning of 2020, that figure stood at $41.7 billion. Short sellers have been targeting cruise lines, hotels and casinos.

No one knows for sure what the market will do tomorrow, but we do know one thing; unlike long investors who don’t have to sell, short sellers must cover their positions eventually. Short selling comes with added expenses as the shares sold must first be borrowed causing interest expenses so these strategies are typically made for shorter-term trading.

If you have any questions about this market commentary, please feel to give me a call at 888-411-2590.


Sources:  Bloomberg, Dorsey Wright & Associates, Inc. and The Wall Street Journal, FactSet.   Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  

Securities offered through Triad Advisors, member FINRA/SIPC. Investment advice offered through Resources Investment Advisors, LLC, an SEC-registered investment adviser. Resources Investment Advisors. LLC and Vertical Financial Group are not affiliated with Triad Advisors, LLC