Shorts are covering ahead of tonight's Apple earnings and tomorrow's Fed announcement. Two Central banks down, one to go. And just to prove that liquidity is of no concern, the Fed has $28 billion in assets rolling off. Today. The largest amount since the January 31st Fed meeting - the last time the wheels came off the bus. In other words stock buyback blackout, Fed liquidity reduction, Tech implosion, Oil implosion, and China implosion. All in one mid-summer week...
In the first quarter post tax cut (Jan-March), aggregate corporate revenues fell on both a real and nominal basis. Per share profit rose due to massive stock buybacks. As we see, real corporate revenue has gone nowhere for an entire decade, despite a doubling in U.S. Federal debt, due to non-stop corporate outsourcing aka. "Shock Doctrine". The stock market essentially cannibalized the economy. This has been the 100% smoke and mirrors recovery:
Come recession, the shock of a lifetime will be who owns these companies. Because after a decade-long corporate debt binge to buy back stock, it's not clear it will be the shareholders who own the shares. In other words, the stock market is now a call option on the cannibalized economy. At least the insiders were able to sell into the buybacks, in record size. "Trusted advisors" who are relying on traditional valuation measures (P/E ratios) etc. will be surprised to learn that debt covenants don't care about valuation. Only cash flow coverage.
Corporate debt, % of GDP:
Getting back to the casino, the most overvalued, overbought, and overowned momentum stocks in the history of the planet just lost their bid. But what could go wrong?
"We viewed Friday's moves as a sign of market exhaustion and think shift toward value could be more sustainable," Michael Wilson, equity strategist at Morgan Stanley, said in a note to clients Monday. "With Amazon's strong quarter out of the way and a very strong 2Q GDP number, investors were finally faced with the question of 'what do I look forward to now?'"
Back in February Apple imploded on weaker than expected iPhone sales, but in May weak sales were conveniently ignored: