🔒 Premium: Private investors drive equities higher; better informed or heading for fall?

START YOUR MORNING BY LISTENING TO TODAY’S BIZNEWS BREAKFAST BRIEFING PODCAST: Stocks end strongly, making July best month since April 2020; Arcelor Mittal’s appeal for investors; Crypto back in favour; China fears property-driven social unrest

(If you’re struggling to access BBB via Spotify of iTunes, an audio-only version is also available on YouTube. Click here). 


___STEADY_PAYWALL___

July was a belter for investors. Especially those who structured their portfolios on a belief the world is transitioning to a very different future, one where winning companies will be those carrying legacies captured by the past.

The Nasdaq Index rose 12.5% in July, its best month since April 2020’s rebound after the previous month’s lockdown-inspired plunge. The index is still down 21% for the year to date, but for believers, this is only the beginning. 

Most professionals, basing their perspectives on history, warn this is a rally in a Bear Market. They note that the final trough marked by ‘capitulation’ hasn’t arrived – and until it does, share markets will remain fragile and vulnerable. Private investors are having none of it. Last month they put more into US shares than they have done since 2014.

It could be that they are better informed because of a democratising of information previously the preserve of institutional investors. That’s a view I’m leaning towards. Because it fits snugly into our credo of never over-estimating the knowledge of our community while never under-estimating their intelligence. Especially once they have access to that knowledge. As is the case today. 

WATCH: After enjoying a sustained run recently, steelmaker Arcelor Mittal’s share price fell 12.5% on the release of interim results today. CEO Kobus Verster says the pullback was largely because of anticipation among investors that the company’s turnaround would be capped by a return to dividend payments. Verster explains in this in-depth interview that there is still repairing to be done on a balance sheet which was smashed by the Covid lockdowns. Also, with fresh investing opportunities earmarked to achieve independence in power and transport, there are other urgent calls on the company’s resources. The good news in the half-year results to end June, released today, is a continuation of the bottom line turnaround (headline earnings up 22% to R3bn; debt down 61% to R1bn) after huge challenges were overcome at the production level. Verster also shared with Biznews.com’s Alec Hogg that the business is highly geared to benefit from any future improvement in the SA economy’s rate of growth – something that’s becoming real possibility following a probable change in government after the 2024 National Elections.

More for you to read today: 


Individual Investors Ramp Up Bets on Tech Stocks

Shares of Amazon, Alphabet, Meta Platforms and others have suffered double-digit declines, but believers say they expect a rebound

By Gunjan Banerji

Technology stocks have taken a beating this year. Many individual investors have used it as an opportunity to double down.

The Nasdaq Composite Index—home to the big tech stocks that propelled the market’s decadelong rally—has fallen 21% in 2022. Shares of Amazon.com Inc AMZN 10.36%▲. and the parents of Google and Facebook META -1.01%▼ have suffered double-digit declines as well, stung by higher interest rates and souring attitudes about their growth prospects.

Yet many of those stocks remain the most popular among individual investors who say they are confident in a rebound and expect the companies to continue powering the economy.

In late July, purchases by individual investors of a basket of popular tech stocks hit the highest level since at least 2014, according to data from Vanda Research. The basket includes the FAANG stocks—Facebook parent Meta Platforms Inc., Amazon, Apple Inc., AAPL 3.28%▲ Netflix Inc. and Google parent Alphabet Inc GOOG 1.79%▲.—along with a handful of others like Tesla Inc. and Microsoft Corp.

Meanwhile, Apple, chip company Advanced Micro Devices Inc. and the tech-heavy Invesco QQQ Trust exchange-traded fund have remained among the most popular individual bets since 2020.

Interest in risky and leveraged funds tied to tech and stocks like Nvidia Corp. has also swelled, a sign that investors have stepped in to play the wild swings in the shares.

It has been a fruitful bet for many. Tech stocks have been on the rebound of late, partly on investor hopes for a slower path of interest-rate increases in the months ahead. The Nasdaq gained 12% in July, its best month since April 2020, outperforming the broader S&P 500, which rose 9.1%.

“I’m extremely bullish on tech,” said Jerry Lee, a 27-year-old investor in New York who co-founded a startup that helps people find jobs. “The market is severely undervaluing how much tech can actually play into our lives.” 

In coming days, investors will be parsing earnings reports from companies such as AMD and PayPal Holdings Inc. for more clues about the market’s trajectory. Data on manufacturing and the jobs market are also on tap. 

Mr. Lee said he recently stashed cash into a technology-focused fund that counts Apple and Nvidia among its biggest holdings, after years of pouring money into broad-based index funds. His experience working at firms such as Google has made him optimistic about the sector’s future, he said.

Even last week when many of the industry’s leaders, including Apple, Amazon and Alphabet, warned their growth is slowing, investors pushed the stocks higher and expressed confidence in the ability of the companies to withstand an uncertain economy. Apple logged its best month since August 2020, while Amazon finished its best month since October 2009, helped by a 10% jump in its shares on Friday alone.

Many investors also pounced on the tumble in shares of Facebook parent Meta Platforms. The stock was the top buy among individual investors on the Fidelity brokerage Thursday when it fell 5.2% in the wake of the social-media giant’s first-ever revenue drop. Tesla, Ford Motor Co. and leveraged exchange-traded funds tracking the tech-heavy Nasdaq-100 index were also widely traded that day.

Gabe Fisher, a 23-year-old investor near San Francisco, said he is holding on to stocks like Meta, Amazon and Alphabet. 

“Even if these companies never grow at as fast of a pace, they’re still companies that are so relevant and so prevalent that I’m going to hold on to them,” Mr. Fisher said.

He said he also has a small position in Cathie Wood’s ARK Innovation Exchange-Traded Fund that he doesn’t plan to sell soon, even though the fund has lost more than half of its value this year

Other investors have been turning to riskier corners of the market. Leveraged exchange-traded funds tracking tech have been the third- and fourth-most-popular ETFs for individual investors to buy this year, behind funds tracking the S&P 500 and Nasdaq-100 indexes. These funds allow investors to make turbocharged bets on the market and can double or triple the daily return of a stock or index.

Many individual investors have also turned to the options market to bet on tech. Bullish bets that would pay out if Tesla shares rose have been among the most widely traded in the options market, according to Vanda. Individual traders have spent more on Tesla call options on an average day this year than on Amazon, Nvidia and options tied to the Invesco QQQ Trust combined, according to Vanda. The firm analyzed the average premium spent on options that are out-of-the-money, or far from where the shares are currently trading. 

Jeff Durbin, a 59-year-old investor based in Naples, Fla., said he regrets missing out on buying big tech stocks decades ago.  

He has scooped up shares of companies like artificial intelligence firm Upstart Holdings Inc. and Shopify Inc SHOP -3.01%▼.—and hung on despite their sharp swings. Shopify, for example, dropped 14% in a single session last week as it said it would cut about 10% of its global workforce. “It’s painful, but I missed out on things like Amazon and Netflix when they were cheap,” Mr. Durbin said. “Who is going to be the Amazon and Apple 20 years from now?”

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