Juggling Dynamite

The widely followed Nasdaq index remains just 6% below its November all-time high, but 38% of its member stocks are down by at least half. This week, the negative divergence has continued with nearly two declining shares for every advancing one.

As shown on the left courtesy of Sentiment Trader,  at no other time have so many constituent stocks been cut in half while the Nasdaq Composite remained so close to its peak. In the past, when at least 35% of stocks were down by half, the Composite had already fallen an average of 47%.

The table below from Lance Roberts in “Passive ETFs” are hiding the bear market, shows some of the individual declines to date. At the same time, the economically sensitive small-cap stock index (Russell 2000) has fallen more than 10% since November and is flat since last January.

The large-cap market resilience is now more vulnerable than in the tech top of 2000. At the height of the 2000 cycle, the five most expensive and widely held stocks–Microsoft, Cisco, Exxon Mobil, GE, and Intel–comprised 18% of the NASDAQ market capitalization. Today, the five most expensive companies (Apple, Microsoft, Amazon, Meta and Tesla) represent an unprecedented 37.8% concentration in the index.

Similar concentration risks threaten the S&P 500 with 50% of the index gains since April coming from these same five companies which, along with Nvidia, Berkshire Hathaway and JP Morgan, now account for 30% of the S&P market cap–the most concentrated since the Nifty Fifty bubble in 1969.

The horror here is that capital continues to flow into funds, ETFs, and portfolios that track large-cap indices because they appear to be ‘outperforming’, which drives even more price-indiscriminate buying of the same over-bought, overvalued names. With participants so loaded on the same positions, the liquidity needed to exit them is much lower than widely appreciated. Herein lies the seeds of panic and investment opportunity to come.

With fossil fuel demand for transportation and heating in a secular decline, the sector has been counting on destructive petro-plastics for its revenue growth; also an unsustainable plan.  Fortunately, there are smarter packaging solutions in the pipeline.

Tom van Aken, CEO of Avantium, joins BNN Bloomberg to discuss the company’s plant-based packaging. He says the product, which is made from hubris and feedstock, is fully recyclable and biodegradable and can be produced using less gas emissions than traditional petroleum products. Here is a direct video link.

As I discussed here in 2021: An excellent year for the unscrupulous, it is important to understand that there is no level of personal wealth at which those without scruples will stop capitalizing on positions of trust and gullible followers.

This is why it’s imperative that we set zero-tolerance policies, prosecute abusers, and disgorge any profits they have amassed by breaching their duty of care.  Moral suasion, ethical standards and laws are meaningless when corporate and individual offenders can retain profits from their actions.

The system is rotting from within because predatory, trust-abusing behaviours have been increasingly tolerated and normalized from corporations and corporate insiders, central bankers, judges, politicians, media, so-called ‘advisers,’ celebrities and social influencers down.  Pump and dump have replaced ethics as the dominant model in an “everybody does it” world, and the social costs keep mounting.

Cryptocurrencies conscripting politicians and celebrities to promote their Ponzi is just the latest iteration, see:  Kim Kardashian and Floyd Mayweather sued by investors over alleged crypto scam:

“EthereumMax has lost around 97% of its value since early June, leading some investors to label it as a “pump and dump” scheme where scammers attempt to boost the price of an asset through false or misleading statements. The accusation features in Huegerich’s lawsuit, which accuses Kardashian and Mayweather of “shilling” EthereumMax.

…social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation.”

While crypto-coins have broadly dropped 30% plus in the last two months, shares of related companies have fared even worse.