Even in the pre-digital age, financial news travelled fast. Humans’ hard-wired love of both gossip and profit have long combined to make stock tips, trading floor rumours and market hunches a potent force.
Potent not just because of the speed at which they travel, but because of their ability to not just reflect the market, but shape it too. In fact, to the intelligent investor, knowing what is being said about the market is as important as what the market is actually doing.
Sentiment, signals and shoeshine boys
One of the best examples of someone identifying and acting on the clues provided by such market sentiment is that of JFK’s father Joseph Kennedy Sr.
The roaring bull market of the 1920s was good to the founding father of the Kennedy dynasty, and like many he made a stack of money in the seemingly endlessly rising market.
In 1929, as the market reached its frothy peak, Joe had an epiphany as he sat down to have his shoes polished. While applying polish to the Kennedy shoes, the shoeshine boy talked excitedly about the stock market and his preferred stock tips.
This unsolicited advice proved life-changing for the market titan; he promptly went back to his office and began unloading his stock portfolio.
In fact, he didn’t just get out of the market, he aggressively shorted it – and then made a fortune in the crash that followed.
Of course such signals seem obvious with the benefit of hindsight. In reality no-one rings a bell when markets reach their peak. Investors can only base their decisions on the information available to them at the time.
The shoeshine boy’s comments were not recorded for posterity, and while he may have lacked the Harvard degree, wealth and influence of Kennedy Sr, he was nevertheless a representative of that powerful but slippery concept – market sentiment.
Nine decades on, sentiment remains a powerful directional signal for investors to follow and act upon.
The most conventional way sentiment has been applied to trading is to long stocks when positive comments are being made about a company, and to short stocks when negative comments are being made.
Clearly that principle has evolved into a fine art, and today’s fund managers typically use multi-layered data strategies in which fundamental market data is overlaid with comprehensive sentiment capture and analysis.
The one snag is that the digital revolution has turbocharged both the volume of sentiment information available, and the speed at which it travels.
Investors are confronted with an ocean of information every day. While much of it is publicly available, no single individual could ever hope to see – let alone understand – more than a tiny fraction of it.
To give an idea of the scale we’re talking about, let’s assume an investor holds 10 high profile, publicly-traded stocks, each of which is mentioned frequently by news or social media.
Within just a couple of minutes, it’s not unreasonable to assume that the stocks in such a portfolio might be mentioned in 100 news media stories around the world – or 10,000 times on social media sites.
With the average person able to read just one 600-word news article in those two minutes, you can see how the almost exponential rate at which information is being published means keeping up with everything that’s being said is impossible.
In the face of such overwhelming quantities of data and intelligence – or ‘infobesity’as it’s increasingly being referred to in the market – it’s tempting to dismiss such constant chatter as mere noise.
Symphony of noise
But while some, or even much, of this information may be a distraction, together it is far from irrelevant. Together this symphony of noise is what best reflects – and shapes – the market.
Most intriguing of all, we’re now arguably at a point where it does so more than the underlying macroeconomic reality.
Until recently central bankers revelled in their ability to make the financial weather. Yet for the first four months of 2018, Mario Draghi tried and failed to talk down the Euro. Instead the single currency rose steadily, hurting Eurozone exporters and throwing a spanner in the bloc’s long-hoped for recovery.
Meanwhile Bank of England Governor Mark Carney’s efforts to shepherd UK market expectations by issuing ‘forward guidance’ on the Bank’s intended monetary policy have failed to deliver the orderly calm he sought.
Dubbed the “unreliable boyfriend” by City wags after failing to stick to his much-trailed guidance, Mr Carney’s pronouncements – initially pored over and treated with reverence– are now greeted with cynicism and even indifference.
The reason is that in the current environment of political uncertainty and infobesity, there is no single, clear reference point for the markets to follow. Markets are instead led by the hunches, emotions and actions of thousands, if not millions, of individuals.
In the age of Trump and Brexit, black swan events can come from anywhere; be they a rogue tweet from the President or an unexpected result in an era-defining referendum.
Fundamentals – such as central bank policy, macroeconomic data or shareholder reports – provide only part of the picture.
By contrast it’s the huge, amorphous mass of sentiment data which gives the best clues as the market’s likely next move.
While the big trading houses bristle with teams of highly-paid analysts who together absorb and study terabytes of sentiment data, AI is now putting such power into the hands of smaller scale investors.
Investment platforms like Infinox now offer sophisticated private investors access to tools which use AI to ingest and analyse millions of sentiment data points, and turn it into clear, understandable and actionable market intelligence.
While infobesity means the signs are harder to spot amid all the background noise, paradoxically it also makes them more powerful – as a sustained sentiment trend has the ability to move markets in a way few other things can.
That’s why effective sentiment analysis, especially when used in conjunction with traditional quantitative data, empowers investors to build highly sophisticated and responsive investment strategies.
As the AI revolution picks up speed, that power – previously the exclusive preserve of deep-pocketed investment houses – is being put within reach of all investors.
Where Kennedy Sr led, we can now all follow.
Jay Mawji is managing director of the global trading platform Infinox
Shares rise as cyclical stocks provide support; yields climb
By Saqib Iqbal Ahmed
NEW YORK (Reuters) – A gauge of global equity markets snapped a 3-day losing streak to edge higher on Friday, as the recent selling pressure on high-flying big technology-related stocks eased even as investors showed a preference for economically sensitive cyclical sectors.
Oil prices fell from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather, while the U.S. Treasury yields extended their recent rise.
The MSCI’s global stock index was up 0.47% at 681.88, after losing ground for three consecutive sessions.
On Wall Street, stocks steadied as cyclical sectors edged higher while tech names made modest advances after concerns about elevated valuations led to some selling in recent sessions.
“What we saw (this week) represents a market that is tired and may not do very much. So we are headed for some sort of a pullback, but I don’t think we’re there just yet,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“Investors are not really pulling out of the market, but they are becoming more cautious. It already has factored in another good positive earnings season.”
The Dow Jones Industrial Average rose 119.97 points, or 0.38%, to 31,613.31, the S&P 500 gained 12.93 points, or 0.33%, to 3,926.9 and the Nasdaq Composite added 92.58 points, or 0.67%, to 13,957.93.
The S&P 500 technology and communication services sectors, housing high-value growth stocks, were among the smallest gainers in early trading, while financials, industrials, energy and materials rose more than 1%.
European shares edged higher on Friday as an upbeat earnings report from Hermes boosted confidence in a broader economic recovery. The pan-European STOXX 600 index was 0.64% higher.
U.S. Treasury yields on the longer end of the curve rose to new one-year highs on Friday as improved risk appetite boosted Wall Street, while the yield on 30-year inflation-protected securities (TIPS) turned positive for the first time since June.
Core bond yields have pushed higher globally, led by the so-called reflation trade, where investors wager on a pick-up in growth and inflation. Growing momentum for coronavirus vaccine programs and hopes of massive fiscal spending under U.S. President Joe Biden have spurred reflation trades.
The benchmark 10-year yield was last up 5.1 basis points at 1.338%, its highest level since Feb. 26, 2020.
Oil prices retreated from recent highs for a second day on Friday as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.
Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude oil production and 21 billion cubic feet of natural gas, analysts estimated.
Brent crude futures were down 28 cents, or 0.44%, at $63.65 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 66 cents, or 1.09%, to $59.86.
Copper jumped to its highest in more than nine years on Friday and towards a third straight weekly gain as tight supplies and bullish sentiment towards base metals continued after the Chinese New Year.
Spot gold XAU= was down 0.58% at $1,785.71 an ounce.
The dollar lost ground on Friday, extending Thursday’s decline as improved risk appetite sapped demand for the safe-haven currency and drew buyers to riskier, higher-yielding currencies. The dollar index was off 0.295%.
Bitcoin hit yet another record high on Friday, hitting a market capitalization of $1 trillion, blithely shrugging off analyst warnings that it is an “economic side show” and a poor hedge against a fall in stock prices.
(Reporting by Saqib Iqbal Ahmed; Editing by Nick Zieminski)
Oil falls after surging past $65 on Texas freeze
By Stephanie Kelly
NEW YORK (Reuters) – Oil prices fell on Thursday despite a sharp drop in U.S. crude inventories, as market participants took profits following days of buying spurred by a cold snap in the largest U.S. energy-producing state.
Brent crude fell 41 cents, or 0.6%, to settle at $63.93 a barrel. During the session it rose as high as $65.52, its highest since January 2020.
U.S. West Texas Intermediate (WTI) crude futures fell 62 cents, or 1%, to settle at $60.52 a barrel, after earlier reaching $62.26, the highest since January 2020.
Brent had gained for four straight sessions before Thursday, while WTI had risen for three.
“The market probably got a little bit ahead of itself,” said Phil Flynn, a senior analyst at Price Futures Group in Chicago. “But make no mistake, this selloff in oil doesn’t solve the problems. The problems are going to persist.”
Though some Texas households had power restored on Thursday, the state entered its sixth day of a cold freeze. It has grappled with refining outages and oil and gas shut-ins that rippled beyond its border into Mexico.
The weather has shut in about one-fifth of the nation’s refining capacity and closed oil and natural gas production across the state.
“The temporary outage will help to accelerate U.S. oil inventories down towards the five-year average quicker than expected,” SEB chief commodities analyst Bjarne Schieldrop said.
Prices dropped despite a decrease in U.S. oil inventories. Crude stockpiles fell by 7.3 million barrels in the week to Feb. 12, the Energy Information Administration said on Thursday, compared with analysts’ expectations for an decrease of 2.4 million barrels.
Crude exports rose to 3.9 million barrels per day, the highest since March, EIA said.
“The big nugget was the big jump in exports of crude oil,” said John Kilduff, partner at Again Capital in New York. “We’ll have to see what happens with that next week weather in Texas, but I have been looking for a pickup there for a while.”
Oil’s rally in recent months has also been supported by a tightening of global supplies, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the OPEC+ grouping, which includes Russia.
OPEC+ sources told Reuters the group’s producers are likely to ease curbs on supply after April given the recovery in prices.
(Additional reporting by Yuka Obayashi in Tokyo; editing by Emelia Sithole-Matarise, Steve Orlofsky, David Gregorio and Jonathan Oatis)
GameStop frenzy sparks fresh investment in stock-trading apps
By Jane Lanhee Lee
OAKLAND, Calif. (Reuters) – The recent trading frenzy centered on GameStop Corp and other “meme” stocks is sparking a wave of investor interest in start-ups aiming to mimic the success of Robinhood Markets Inc, whose no-fee brokerage app has helped drive a trading boom.
Public.com, a direct competitor to Robinhood that boasts a host of blue-chip backers, said on Wednesday it had raised $220 million, valuing it at $1.2 billion on the private market. Another well-heeled rival, Stash, said earlier this month it had raised $125 million, while Webull Financial LLC, backed by Chinese investors, is also raising fresh funds after enjoying an influx of new users.
Robinhood, meanwhile, raised some $3.4 billion in the midst of the GameStop furor to assure its stability amid rapid growth and demands by its trading partners that it post more collateral.
The fresh investments are coming even as government regulators ramp up scrutiny of Robinhood and others involved in the GameStop trading. A U.S. congressional committee on Thursday grilled the chief executive of Robinhood and a YouTube streamer known as “Roaring Kitty,” among others, as it probes possible improprieties, including market manipulation.
Robinhood came under stiff criticism from some quarters for restricting trading in GameStop and other shares at the height of the frenzy, a move the company says it was forced to make due to requirements of partners that settle trades. It has also drawn scrutiny for a business model that relies on payments for sending trading business to partner brokerages, a practice Public.com and some other rivals are pledging to avoid.
Investors see rich opportunity in bringing easy stock trading to smartphone users globally, though the companies say they are also cognizant of the risks.
Stash, which doubled its active accounts to over 5 million by the end of last year, operates with only four trading windows a day to discourage rapid speculative trading, it said.
U.K.-based Freetrade.io told Reuters by email that its user numbers last year grew six-fold to 300,000 and by mid-February had reached 560,000. It said it had raised a total $35 million, including from crowd-funding rounds from over 10,000 customers.
But it does not offer margin trading or riskier offerings. “These products encourage investors to behave as if they are gambling or speculating rather than investing,” a Freetrade.io spokesman said.
Interest in trading apps is soaring globally. In Mexico, trading app Flink launched seven months ago and already has a million users, according to co-founder and chief executive Sergio Jimenez. He said Mexicans can buy fractions of U.S. stock through the platform, but not Mexican stocks – yet.
“Ninety percent of them are investing for the first time,” said Jimenez.
Flink raised $12 million in a funding round in February led by Accel, an early investor in Facebook. Accel is also an investor in Public.com and Berlin-based Trade Republic Bank Gmbh, which allows European retail investors to buy fractions of U.S. stocks, according to Accel partner Andrew Braccia.
“The bigger story here is there’s just this global trend of… accessibility,” he said.
Start-up investors also see opportunity in the infrastructure behind the trading apps. DriveWealth, which serves Mexico’s Flink and 70-plus other online trading apps around the world, has hundreds more partnerships in the pipeline, according to founder and chief executive Bob Cortright. DriveWealth provides the technology to power digital wallets and trading apps, and also provides clearing and brokerage service to its business partners.
“This is this is only beginning,” said Cortright. “The fact that you could have a smartphone in your hand in India, for instance, and buy $10 worth of Coca-Cola stock at an instant, that’s pretty game-changing.”
Venture capital investments in U.S. fintech companies hit a record last year with $20.6 billion invested, according to data firm PitchBook. Globally, around $41.4 billion was invested in fintech companies in 2020.
(Reporting By Jane Lanhee Lee in Oakland; Editing by Jonathan Weber and Dan Grebler)
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Shares rise as cyclical stocks provide support; yields climb
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