U.S. stocks are racing toward a third consecutive year of big gains, with major indexes near records to end 2021.
Even with the recent turbulence from the Omicron coronavirus variant, the S&P 500 is headed toward a 27% advance for 2021 and has hit 70 highs. It is the third straight year of double-digit gains for the broad index, and the second in the midst of the Covid-19 pandemic. The Dow Jones Industrial Average and Nasdaq Composite have gained 19% and 22%, respectively, this year, helping send the major indexes to their best three-year performance since 1999.
Some traders note that warning signs are flashing: Inflation could turn companies’ and customers’ finances upside down. Many companies that have been market darlings are losing money. Big-name stocks continue to log giant one-day swings. However, individual traders and institutional investors are hungry to take bigger risks and willing to accept bouts of volatility.
The year kicked off with a mind-bending start: Day traders who poked around with stocks early in the pandemic plowed money into meme stocks such as GameStop Corp., disrupting the power dynamic by which professional investors are usually the market king. Money managers say that this year more than ever, they are closely tracking where individual investors park their cash and monitoring their trading activity for clues on the market’s moves.
The fireworks weren’t limited to meme stocks. The market values of stocks within the S&P 500 surged or tumbled at a rate approaching the panicked, volatile early days of the Covid-19 pandemic, according to Bank of America Corp. analysts. Even some of the biggest companies in the U.S. recorded mammoth moves, in some cases gaining or losing tens of billions of dollars in market value within days. That includes
“We’ve never seen anything like that in history,” said Dean Curnutt, chief executive of brokerage Macro Risk Advisors, referring to the volatility in some single stocks. “The up crashes have been gigantic.”
Figures from Macro Risk Advisors show that stocks such as GameStop, AMC, Tesla and Nvidia Corp. were more volatile on days the shares were rising than when they were falling, upending the market’s typical dynamics.
“Who said it was escalator up, elevator down for stocks?” wrote Mr. Curnutt in a note to clients.
These moves lured many investors, both institutional and individual, into options, a shift that can make the market vulnerable to bigger swings, some traders have said. Trading activity in options, which give traders the right to buy or sell stocks at a specific price by a stated date, hit the highest level in the industry’s history in data going back to 1973.
By one measure, options trading, which can be riskier than stock trading, is on track to surpass stock activity for the full year for the first time, according to Cboe Global Markets data as of Dec. 28. In 2021, the daily average notional value of traded single-stock options has exceeded $467 billion, compared with around $410 billion of stocks. Notional value measures how much the shares underlying option contracts are worth. The figure fluctuates with daily moves in the shares.
Traders poured gobs of money into options on a handful of highflying tech stocks, with Tesla an overwhelming favorite. Traders spent more than $670 billion on options tied to Tesla, in what is known as premium, according to Cboe data. That is more than they spent on
Initial public offerings and special-purpose acquisition companies, known as SPACs, broke record after record. SPACs as of last week had raised $162 billion in 2021, more than what they raised in the previous decade combined, according to Dealogic. Many of them are unprofitable; around 70% of companies going public through traditional IPOs have been losing money, a greater proportion than even during the tech bubble of the 1990s, according to Bank of America figures as of November.
“This was the year of the risk asset,” said Shanta Puchtler, president of investment company Man Group, which oversees around $140 billion in assets. “Anywhere there was risk and an opportunity for larger returns, we saw that pay off in spades.”
SHARE YOUR THOUGHTS
What did you find most interesting about the markets this year? Join the conversation below.
The heavy speculation left some investors questioning if markets were in a giant bubble, though some of the excitement has started to fizzle. Near-zero interest rates and the central bank’s pandemic interventions have been a key support for stock markets for nearly two years now. The Federal Reserve signaled this month that it is prepared to raise rates next year and pare its bond-buying program at a quicker pace. When rates rise, investors have more options for where to park their money for a gain and can become less willing to take risks.
Investors also had to contend with one big factor that they mostly ignored for the past decade: inflation. U.S. inflation reached nearly a four-decade high last month, raising questions about how many price increases Americans can absorb. The emergence of the Omicron variant has whipsawed U.S. stocks since Thanksgiving.
Shares of the ARK Innovation exchange-traded fund, SPACs and several meme stocks have tumbled from their highs earlier in the year. More than 300 unprofitable companies fell more than 50% from recent peaks and many stocks haven’t participated in the broader market’s ascent in recent months. Many companies that made their public debuts this year are now trading below IPO prices.
“Some of these bubbles have basically bursted,” said
shares tumbled 38% in Wednesday’s after-hours trading, after the remote healthcare provider reported deeper-than-expected losses for the first quarter and cut its financial projections for the year. The stock already had slid 70% over the past 12 months as the company struggled to shake off concerns that it’s just a pandemic play.
(ticker: TDOC) posted a loss of $6.67 billion, or $41.58 a share. Analysts polled by FactSet had been expecting a loss of just 60 cents a share, on average. In the same quarter last year, the telemedicine company lost $199.6 million, or $1.31 per share.
The loss in the first quarter was mainly driven by a noncash goodwill impairment charge of $6.6 billion, which is often recorded on the income statement after a company acknowledges that an asset has lost value or become completely worthless.
In Wednesday’s news release, Teladoc didn’t disclose many details about the goodwill impairment charge, but a large part of goodwill on its books came from its $18.5 billion acquisition of Livongo in 2020, according to the company’s filings with the Securities and Exchange Commission. Livongo is a digital health-management and coaching platform for people with chronic conditions like diabetes.
The goodwill impairment was triggered by the sustained decline in Teladoc’s share price, which is driven by the increased discount rate of the company’s future cash flows and decreasing valuations for peers in the high-growth digital healthcare space, said Chief Financial Officer Mala Murthy during a conference call Wednesday afternoon.
(ONEM), two of Teladoc’s major competitors in the telemedicine space, have seen their shares lose 80% and 83%, respectively, over the past 12 months.
Teladoc revenue increased 25% from the year-ago quarter to reach $565.4 million. The firm demonstrated “significant progress” in a number of strategic initiatives, said Teladoc CEO Jason Gorevic in a statement. Still, the number came in slightly lower than the $568.7 million estimates from Wall Street analysts.
For the fiscal year, Teladoc now expects to see revenue between $2.4 billion and $2.5 billion, and earnings before interest, taxes, depreciation and amortization, or Ebitda, ranging from negative $7 million to negative $52 million. The company has previously projected $2.55 billion to $2.65 billion in revenue and $18 million to $48 million in Ebitda.
“We are revising our 2022 outlook to reflect dynamics we are currently experiencing in the direct-to-consumer mental health and chronic condition markets,” says Gorevic, noting that higher advertising costs in some channels have dragged on the yield of its marketing spending. The firm is also seeing an “elongated sales cycle” in the chronic-condition market, he says, as employers and health plans evaluate their long-term strategies.
Following the disappointing earnings report, Teladoc shares, which had already fallen 3.1% during Wednesday’s trading to $55.99, slid further after hours to reach $34.50. If the losses are retained at Thursday’s market open, it will be the lowest level for the stock since March 2018 and cause significant losses for some of its largest shareholders.
TORONTO (Reuters) – Canada is locking up more people in immigration detention without charge after the numbers fell during the pandemic, government data obtained by Reuters shows.
Authorities cite an overall rise in foreign travelers amid easing restrictions but lawyers say their detained clients came to Canada years ago.
Canada held 206 people in immigration detention as of March 1, 2022 – a 28% increase compared with March 1 of the previous year. Immigration detainees have not been charged with crimes in Canada and 68% of detainees as of March 1 were locked up because Canada Border Services Agency (CBSA) fears they are “unlikely to appear” at an immigration hearing, according to the data.
The rise puts Canada at odds with Amnesty International and other human rights groups that have urged Ottawa to end its use of indefinite immigration detention, noting CBSA has used factors such as a person’s mental illness as reason to detain them.
A CBSA spokesperson told Reuters that “when the number of entries (to Canada) goes up, an increase in detention is to be expected.” CBSA has said in the past it uses detention as a last resort.
A lawyer told Reuters her detained clients have been in Canada for years.
In the United Kingdom, too, immigration detention levels rose last year after dropping earlier in the pandemic, according to government statistics. Unlike Canada, the United States and Australia, European Union member states have limits on immigration detention and those limits cannot exceed six months.
The rise in detentions puts people at risk of contracting COVID-19 in harsh congregate settings, refugee lawyers say.
Julia Sande, Human Rights Law and Policy Campaigner with Amnesty, called the increase in detentions “disappointing but not surprising,” although she was reluctant to draw conclusions from limited data.
The number of immigration detainees in Canada dropped early in the pandemic, from a daily average of 301 in the fourth quarter (January through March) of 2019-20 to 126 in the first quarter (April through June) of 2020-21.
FEW NO-SHOWS AS DETENTIONS DROPPED
Detaining fewer people did not result in a significant increase in no-shows at immigration hearings – the most common reason for detention, according to Immigration and Refugee Board data.
The average number of no-shows as a percentage of admissibility hearings was about 5.5% in 2021, according to that data, compared to about 5.9% in 2019.
No-shows rose as high as 16% in October 2020, but a spokesperson for the Immigration and Refugee Board said this was due to people not receiving notifications when their hearings resumed after a pause in the pandemic.
Refugee lawyer Andrew Brouwer said the decline in detention earlier in the pandemic shows Canada does not need to lock up as many non-citizens.
“We didn’t see a bunch of no-shows. We didn’t see the sky fall … It for sure shows that the system can operate without throwing people in jail,” Brouwer said.
He added that detainees face harsh pandemic conditions in provincial jails – including extended lockdowns, sometimes with three people in a cell for 23 hours a day.
Refugee lawyer Swathi Sekhar said CBSA officials and the Immigration and Refugee Board members reviewing detentions took the risk of COVID-19 into account when deciding whether someone should be detained earlier in the pandemic but are doing so less now.
“Their position is that COVID is not a factor that should weigh in favor of release,” she said.
“We also see very, very perverse findings … [decision-makers] outright saying that individuals are going to be safer in jail.”
The Immigration and Refugee Board did not immediately respond to a Reuters request for comment.
Stock futures rose in overnight trading as the market shook off the April sell-off and investors reacted positively to earnings from Meta Platforms.
Futures on the Dow Jones Industrial Average added 70 points or 0.2%. S&P 500 futures gained 0.7% and Nasdaq 100 futures jumped 1.2%.
The moves came as shares of Meta surged more than 18% after hours following a beat on earnings but a miss on revenue, a sign that investors may see signs of relief in the beaten-up tech sector. Shares were down 48% on the year heading into the results.
Meanwhile, shares of Qualcomm gained 5.6% in extended trading on the back of strong earnings while PayPal rose 5% despite issuing weak guidance for the second quarter.
“I think a lot of people want to believe that earnings are going to pull us out of this, but earnings are not what got us into this,” SoFi’s Liz Young told CNBC’s “Closing Bell: Overtime” on Wednesday. “… But the reality is there are so many macro headwinds still in front of us in the next 60 days that the market is just hard to impress.”
The after-hour activity followed a volatile regular trading session that saw the Nasdaq Composite stoop to its lowest level in 2022, as stocks looked to bounce back from a tech-led April sell-off. The index is down more than 12% since the start of April.
In Wednesday’s regular trading, the tech-heavy Nasdaq ended at 12,488.93, after rising to 1.7% at session highs. The Dow Jones Industrial Average rose 61.75 points, or 0.2%, to 33,301.93 propped up by gains from Visa and Microsoft, while the S&P 500 added 0.2% to 4,183.96.
Investors await big tech earnings on Thursday from Apple, Amazon and Twitter, along with results from Robinhood. Jobless claims are also due out Thursday.