Barron’s Weekend Summary: Jin Wang has experienced significant success in day trading by betting on intraday moves in the S&P 500 index
Cover:
-Jin Wang, a software product manager in Houston, has experienced significant success in day trading by betting on intraday moves in the S&P 500 index. Wang used a strategy called "zero days to expiration" (0DTE), which accounts for nearly half of the daily volume of S&P 500 index options, up from 17% in 2020. 0DTE options offer rare, lottery-like payoffs, with a highly volatile day potentially generating at least a 20% gain. However, traders who aren't quick to lock in gains can lose their entire position before the day's end. Hedging erodes potential gains, adds more costs, and is difficult to execute efficiently. Currently, 0DTE options are limited to major indexes and related ETFs, but brokers and exchanges are in discussions about expanding 0DTE to individual stocks, likely megacaps like Apple and Nvidia. The rise of 0DTE options has not coincided with a spike in volatility, and while volumes have soared, the "0-day space remains well-balanced," according to BofA Securities.
Interview:
-Blake Haxton, a credit analyst at Brandywine Global and a Paralympic athlete, persevered despite suffering a severe bacterial infection and nearly losing his life in high school. He underwent over 20 surgeries, including amputating his legs, to save his life. Now 33, Haxton is part of the Franklin Resources investment boutique team managing the top-performing Brandywine Global High Yield fund and is preparing to represent the U.S. in canoeing. His journey demonstrates the importance of overcoming challenges in investing.
Tech Trader:
-it’s not the usual tech Trader column this week. Eric J. Savitz, who has been running it for the past few years, will be leaving Barron’s. Before leaving, he’s distilled his 40-year experience in technology and innovation for investors to use as guidance in understanding what makes for successful technology investing. He explains that the next great thing often doesn't make much sense, but it always makes for fantastic copy. Savitz cites examples such as 3-D televisions, the metaverse, virtual and augmented reality, 3-D printing, personal drones, cryptocurrency, blockchains, NFTs, Web3, fake meat, legal marijuana, Segways, Quibi, and Napster. He also mentions the rise and fall of Flip camcorders, MoviePass, SecondLife, Hyperloop, WeWork, Jawbone, Webvan, Juicero, nanotech, superconductors, Theranos, Solyndra, SPACs, and direct stock listings.
Savitz emphasizes the importance of being skeptical but not cynical when experimenting with technology. He advises being open to new ideas but not getting sucked into nonsense and tamping down on FOMO. While some of the things on his list were obvious losers, such as 3-D TVs, he emphasizes the importance of trusting common sense and ignoring marketing blather.
The Trader:
-The stock market has been hitting new highs, but most stocks are struggling. Even news that would usually move stocks is not doing the trick, indicating that equities won't be an exciting place to invest in a while. The market is lacking participation, and the market is not responding to a benign inflation report on Friday. The personal consumption expenditures index rose 2.6% year over year in May, sending the two-year Treasury yield down to as low as 4.67% from 4.74% the previous week. However, the S&P 500 gained just 0.1% Friday, as the market turns from focusing on interest rates to worrying about economic growth. This could keep investors in Big Tech, particularly the Magnificent Seven, as their growth doesn't rest on the economy as much as it does on bigger themes such as artificial intelligence. Lower rates make future profits more valuable.
-How to trade Nvidia? Nvidia stock has dropped 17% from its intraday peak of $140 to Monday's low of $116, and is still down 10% after Tuesday's rally. The stock's decline is not due to a catalyst, as the company has not announced any news or guidance. However, Nvidia stock was overextended, reaching 37% above its 50-day moving average at its peak on June 18. When the stock starts falling, it could easily drop all the way to its 50-day moving average, now at $102.29. This suggests the stock could fall another 19% before finding its footing. However, Nvidia will find its footing as long as its financials hold up. Analysts expect sales to hit about $115B this year and to grow at about 25% annually from the end of 2024 through 2026, reaching $183B. Artificial intelligence requires more chips, which carry higher prices and higher gross profit margins, resulting in earnings increasing 27% annually through 2026, ultimately reaching $4.13 a share.
Features:
-President Joe Biden's presidential debate against former President Donald Trump has sparked concerns about his age and fragility among voters. With over two-thirds of the electorate unhappy with either Trump or Biden, policy strategists are trying to determine whether and how the Democratic ticket could change. Biden hasn't indicated any changes, but strategists are handicapping the possibilities. Any changes aren't immediate due to a host of developments in the next two weeks, including Trump's sentencing related to his criminal convictions and his vice presidential pick. Democrats will need to decide by mid-August at the latest and go into the convention with a plan and potential successor to Biden by mid-August. The shortlist of possible replacements is led by Vice President Kamala Harris, California Gov. Gavin Newsom, Commerce Secretary Gina Raimondo, Michigan Gov. Gretchen Whitmer, and Mitch Landrieu, Biden campaign co-chair and administration's former infrastructure adviser. Rep. James Clyburn, who was critical in helping Biden win South Carolina, is critical to any replacement discussion.
-France's potential election of a party with a fringe political stance is raising fears in Europe. President Emmanuel Macron's party's poor performance in a European Union parliament vote led to snap elections, prompting him to call for more extreme policies. The risks are that the parties could push through unfriendly policies, such as curbing immigration and increasing government spending, which could increase inflation. Paris's CAC 40 stock index has fallen 9% since May 15, wiping out over $200B of its market value. European investment manager Phil Macartney warns that markets dislike uncertainty and elections are complicated, but large macro bets on large geographic areas can lead to disastrous results. France's economy is improving, with the International Monetary Fund predicting growth to accelerate to 1.3% next year. Inflation is expected to slow, and the European Central Bank has started cutting interest rates, supporting expansion. France could be a valuable investment destination as the election unfolds. Companies with strong prospects, such as Rémy Cointreau, LVMH, and Schneider Electric, are trading at a discount. These stocks have dropped between 4% and 12% in the past month, with Rémy Cointreau experiencing a 33% drop. Diversifying from the U.S. and taking advantage of political turmoil elsewhere could be beneficial.
Europe:
-The US dollar could be the immediate winner of European elections, especially if the voting results in a hung government. Market tremors have already occurred around the French parliamentary elections, with strategists expecting more disruptions, especially if the vote ends in a hung government. This could create a temporary flight-to-safety into U.S. Treasuries and drive more dollar strength against the euro. The U.K. parliamentary election on July 4 is expected to see the Labour Party oust Conservative rule, with a more focused approach to dealing with the country's structural economic issues. France's election is expected to be more disruptive, with the far-right Rassemblement National leading in polls.
Emerging Markets:
-No update
Commodities:
-Gold prices have risen by nearly 14% this year and are nearing a record high. However, due to geopolitical conflicts and expectations for a Federal Reserve rate cut, financial advisors recommend adding more gold to portfolios. Nearly 30% of the 400 financial advisors surveyed plan to increase their gold allocation over the next 12-18 months, with nearly two-thirds expecting to keep their gold investments steady. Less than 10% will reduce their gold exposure. Experts do not recommend overdoing gold exposure, with 56% having only 1% to 4.9% of their assets allocated to the metal. Most advisors own gold through physically backed gold exchange-traded funds, gold miner stock ETFs, and gold mutual funds. Gold typically performs well during times of turmoil, as it is a safe haven with a finite supply.
Streetwise:
-Canned soup has seen a decline in investment interest due to a shift in consumer preferences. Young consumers prefer digitally ordered burritos and families prefer scratch cooking. The best case for Big Soup is a casserole recipe that calls for a can of broth, but single-serve, ready-to-eat varieties are out of favor. Campbell Soup, a company that traces its roots back to the Civil War, has seen its stock gain popularity. Despite being one of the least loved names on Wall Street, five in 24 analysts are now bullish, and investment bank D.A. Davidson initiated coverage at Buy back in February. J.P. Morgan recently upgraded Campbell to Overweight for the first time in 15 years, with analysts focusing on the potential for a newly acquired sauce brand called Rao's. Campbell has made several significant acquisitions, including Franco American canned pasta, V-8 vegetable juices, Pepperidge Farms breads and snacks, Pacific Foods for organic soups, and Snyder's-Lance snacks. In 2019, a new CEO took over the company.