Stocks are still Overhyped ?? | Market News Roundup
Heading into the historically rough month of September, news sentiment is back to highly bearish levels after the Fed's hawkish outlook. Are stocks poised to continue shedding value?
Welcome to our weekly?Market News Roundup????
this is your weekly screener of stock market news coverage; quantifying the hype, and bringing you a bird’s eye view of the top bullish, bearish, and trending stocks parsed from thousands of news articles?this week.
Here’s the agenda for today’s quick news review:
1. Overall News Sentiment????
The mood measured in stock market news coverage was markedly bearish over the past week, finishing at an?overall bearish sentiment score of -25%?— it’s most bearish levels since early July. Zooming in, this bearish-ness was mainly centered around smaller-caps, as the mood expressed about stocks in the?Russell 2000?was sharply bearish (-80%), while the mood expressed about larger-caps in the?S&P 500?was only slightly bearish (-16%). This week’s mood was driven by the following major topics and events:
?? Stocks fall & bond yields climb after the Fed’s interest remarks ??
?? Labor growth slowed in August, unemployment rate rose to 3.7% ??
? Tensions between China & Taiwan continue to escalate ??
2. Stocks to Watch ????
A quick look at two notable stocks to keep an eye on based on their sentiment detected in stock market news coverage: Bed Bath & Beyond, and Palo Alto Networks
Bed Bath & Beyond ($BBBY)????bearish sentiment???
this week: ??-93% news sentiment | ??-25% stock price
Major US retailer (and meme stock favorite) Bed Bath & Beyond?BBBY?-0.68%↓?saw a record increase in news coverage this past week and finished with some of the most bearish news sentiment on the market (-93%) after?CFO Gustavo Arnal was found dead?on Friday, falling from the 18th floor of a New York City apartment building. Just two weeks prior,?Arnal was named in a?class-action lawsuit?on allegations of federal securities fraud, insider trading, and breach of fiduciary duty.
According to court documents, Arnal was cited in the suit along with activist investor and GameStop chairman Ryan Cohen, who the lawsuit claims collaborated with the CFO in a "fraudulent scheme to artificially inflate the price of Bed Bath & Beyond's publicly traded stock."?Arnal’s death also comes just days after Bed Bath & Beyond announced?plans to close 150 stores, cut jobs and overhaul its merchandising strategy in an attempt to turn around its money-losing business.?In the aftermath, BBBY stock has fallen more than -25% to $8.63 per share — the struggling stock had climbed a miraculous +300% from $5.77 to $23 over the first two weeks of August, driven by online hype from meme-traders and catalyzed by Arnal & Cohen’s alleged pump & dump scheme:
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Palo Alto Networks ($PANW)????bullish sentiment???
this week: ??+35% news sentiment | ??-3% stock price
Cloud-cybersecurity provider Palo Alto Networks?PANW?0.00?finished this week as one of the most bullish stocks according to sentiment measured in market news coverage (+35%), amidst residual hype from its recent FQ4 earnings report (and aided by positive buzz around cybersecurity stocks in general recently).?In its quarterly report, Palo Alto Networks beat analyst expectations across the board: posting?+27% year-over-year revenue growth to?$1.55B?(vs. $1.54B expected), adjusted earnings of?$2.39 per share?(well-above the $2.28 EPS expected), and impressive adjusted free cash flows of 33% (meaning the company turned roughly a third of revenue into free cash for the full year, a rare feat on Wall Street nowadays).
This quarter also marked the?1st time in four years that Palo Alto reported a net profit, a strong positive sign for investors on the sideline. To add more fuel to the flame, the company increased forward guidance — projecting another year of more than 20% annual sales gains ahead — and?declared a 3-for-1 stock split, which will go into effect on September 14th. All in all, the stock is checking all the right boxes, and given its position in the blossoming cybersecurity industry, Wall Street is beginning to take notice. Over the last few days, analysts at?Barclays, Citi, and other rating agencies increased their PANW price targets in sync, with the average PT coming in at $655?(PANW currently trades $539, indicating a potential 21% upside over the near term). More on Palo Alto Networks prospects and business expansion plans here:
3. Market Mood??Outlook ??
After a few straight weeks of overarching net-positive news sentiment through the majority of August, this week’s more bearish mood in stock market news coverage took a bit of the hot air out of the room — perhaps rightfully so. The S&P 500 is down -8.6% from its local maximum of $4,305 three weeks ago, signaling that any further downward movement over the coming days would put an official end to August’s bear market rally. Given the peak hawkish-ness from the Fed last week + expectations that?September is a historically bad month?for the markets, the?table appears all but set for continued downward movement over the coming weeks.?More on these confounding factors:
September as a historically tough month for stocks ???
Although August isn’t typically a month to write home about on the markets, September has historically been even worse.?Dating back to 1928, the S&P 500 has seen a median decline of -0.42% in the month of September alone, making it the toughest month of the year on the markets over the past near-century. Add in what looks like a bonafide recession over the past few months, and we might expect more of the same. As the old saying goes: historically may not repeat itself, but it tend to rhyme.
Stocks remain largely in “overhyped” territory ??
Even despite the general downward trajectory of the major US stock indexes over the past 9 months (the S&P 500, Russell 2000, and NASDAQ are all roughly -20% below there peaks from last November), US stocks still remain largely overvalued across the board. The “Buffett Indicator” — a relatively simple fundamental metric comparing the ratio of Market Cap to GDP — shows that stocks are still trading at 173% domestic GDP. This puts current valuations near historically relative highs, indicating plenty of room for stocks to continue falling (though the good news is that lower valuations means better long-term entry points).
Hawkish expectations from the Fed ??
Aside from the historical framing, a more tangible catalyst for our day in time is the recently hawkish tone from the Federal Reserve about interest rates and inflation. For all intents and purposes, the Fed is expected to follow through with another aggressive rate increase at their upcoming meeting on September 21st, with experts anticipating a hike of 75 basis points (or 0.75%). This would put the Fed fund rate at 3.25% on the whole, which expectations for the Fed to pause at 4% by December 2022. Much of this is predicated on inflation continuing to slowly ease over the coming months — we will look to the government’s monthly inflation report on September 13th for more clues.
As always, the future remains to be seen. That’s all for this week — let us know if there’s anything we missed by commenting below, replying to this email, or?sending us a text at?+1 (833) 878 9106. And if you liked this post, please support us by clicking the like button! Best of luck to all of you in the markets this week, stay safe out there, and thank you for reading. ??
Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Credit to the respective teams at?John Hancock Investment Group?and?Edward Jones?cited below: