Crowded Trade

U.S. markets hit new record highs as investors flocked to stocks, especially their favorites.

The Market Sum | Insight after the bell By Caleb Silver, Editor in Chief Wednesday's Headlines 1. US markets reach record highs again 2. Jeff Bezos unloads $4.1 billion of AMZN stock 3. Big money is flowing into bonds 4. The top tech stocks are now 19% of the market Markets Closed Dow 29,551.42 +275.08 (+0.94%) S&P 3,379.45 +21.7 (+0.65%) Nasdaq 9,725.96 +87.02 (+0.90%) VIX 13.74 −1.44 (-9.49%) Bitcoin $10,354.60 +$512.81 (+1.84%) US 10-Yr Yield 1.63 +0.0400 (+2.52%)     Markets Today  U.S. markets cruised to new highs yet again today as investors' appetite for stocks continued to expand. Concerns about the impact of COVID-19 (the coronavirus) appear to have abated as the number of new cases has been dropping over the past two days. That, and the fact that the Chinese government has mobilized on all fronts to backstop the economy. It is easing lending restrictions on banks, softening some tax rules on consumers, pledging over $10 billion to fight the virus, and releasing 20,000 tons of frozen pork from its reserve.  Yes, China has a strategic pork reserve. They keep approximately 200,000 tons.   Hotel and airline stocks like Wynn, Sands, American Airlines, and United Airlines, have all been slowly trading higher over the past several days as concerns have eased. That doesn't mean the virus is under control by any means. It's not, and while WHO said today that "it is contained, but that could change", the CDC said the U.S. should expect it to take a "foothold" on these shores. Meanwhile, the Mobile World Congress, the largest trade show for the mobile phone industry, cancelled its upcoming conference in Barcelona due to concerns about the virus. The cancellation is a big deal in that industry and for its suppliers. Headlines: The U.S. federal budget deficit was $389 billion from October through January, compared with $310 billion in the same period a year earlier, the U.S. Treasury Department said Wednesday. That's a 25% increase. Federal spending rose 10%, to $1.6 trillion, and federal tax receipts grew 6%, to $1.2 trillion—both record highs for the four-month period. The latter two numbers are somewhat misleading, however, as they do not account for inflation or growth in the size of the economy. Federal taxes currently make up 16.2% of GDP, well below the historical average since WWII of about 18%, despite the U.S. being in a sustained economic expansion. Federal spending as a percent of GDP is about 21%, slightly above its long-term average over about 20%. Amazon CEO Jeff Bezos has sold over $4 billion in stock over the past week, according to regulatory filings. After barely selling any stock over the past decade, the world's richest person has lately been unloading shares at a record pace. Bezos split with his wife MacKenzie last year, but retains 75% of the couple's interest in Amazon, according to court records. He is also funding Blue Origin, his space exploration company. The U.S. Dept. of Education opened investigations into Harvard and Yale for failing to report funding from foreign governments. The DOE found, as part of a continuing review, that U.S. universities failed to report at least $6.5 billion in foreign funding from countries such as China and Saudi Arabia, according to the WSJ. KKR (KKR), the notorious private equity firm, raised $1.3 billion for its first global impact fund as the alternative asset manager steps up investments in businesses tackling environmental and social challenges. KKR is the firm behind the $26 billion leveraged buyout of RJR Nabisco lionized in the classic book "Barbarians at the Gate". Despite more and more record highs for U.S. equities, fixed income has seen the majority of the inflows from investors since 2019. According to Lipper, which tracks fund flows, $382 billion has flowed into bonds since the start of 2019, while $191 billion has flowed out of equity funds. That suggests that there is a lot of money on the sidelines, and large investors may be taking risk off the table. (More below) Bed Bath & Beyond (BBBY) is experiencing "short-term pain," according to CEO Mark J. Tritton. The company said in a news release Tuesday that same-store sales fell 5.4% during the holiday quarter. BBBY shares cratered 25% in extended trading. Samsung rolled out its new Galaxy Z Flip foldable phone with a price tag of $1400. The company also unveiled its new flagship Galaxy S20 series and an updated AirPods-alternative in San Francisco yesterday. The three new Galaxy S20 phones have 5G connectivity, new AI powered cameras, and more secure processors.     Following the Flows As mentioned earlier, money has been flowing into bond funds and ETFs and out of equity funds all year, according to Lipper, which tracks flows. It seems peculiar that this is happening at a time when U.S. markets continue to make all-time highs, but it's important to realize that it's not a zero-sum game when it comes to asset allocation. While money has flowed out of equity mutual funds, equity ETFs have seen $38.5 billion of inflows this year. And just because equity mutual fund flows are negative, it doesn't mean that big institutional investors, pension funds, and hedge funds haven't been buying individual stocks and stock ETFs. They have been, and we'll address that in a second.    It's not a surprise that bond funds have been attracting more money as of late. With markets at record highs, valuations looking stretched, and new risks popping up almost weekly, the relative stability of fixed income is inviting for many investors who have enjoyed a decade's worth of high stock returns thanks in part to low interest rates. Fixed income returns have been pretty good, too. Those lower interest rates translate into lower bond yields, which turn into higher prices for bond holders. In fact, long term U.S. treasuries have actually outperformed the S&P 500 over the past 20 years.    The Big Get Bigger The stocks investors have been favoring are the same ones they loved in 2019, Facebook, Apple, Amazon, Microsoft and Google, the FAAMGs. They now account for a full 19% of the S&P 500's market cap, surpassing the dot-com era concentration in top stocks. They are also the most widely held stocks in index fund ETFs and mutual funds, and have an enormous base of institutional investors backing them.   chart courtesy BankofAmerica   Investors like to herd, and the returns have been plentiful, but this lack of diversification doesn't always end well. It's not just a U.S. phenomenon, either. If you look at country-specific funds around the world, the crowding around the biggest stocks is even more pronounced.   chart courtesy CompoundAdvisors     More News: 3 Charts Suggest Cybersecurity Stocks Are Headed Higher Shopify Stock Rockets to All-Time High After Earnings Stocks Climb As COVID-19 Spread Declines SPONSORED BY INVESCO The Complete Guide to ETFs ETFs are becoming increasingly popular and soaring to new heights among investors. Invesco's insights can help you determine if these investment vehicles are right for you. Learn More » (chart courtesy YCHARTS)     Real estate data and analytics company, CoStar Group, rose today after it said it was purchasing rental-property-website operator, RentPath. RentPath has filed for bankruptcy and the acquisition will require approval of a bankruptcy court judge. Clothing store Urban Outfitters announced higher-than-expected sales for its most recent quarter, sending its stock higher today.     Apparel maker Under Armour fell dramatically today after it announced both disappointing earnings for last year and disappointing sales guidance for this year. Moderna, a biotech company developing a coronavirus vaccine, lost much of yesterday's gains. Word of the Day Leveraged Buyout (LBO) A leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company.     Today in History February 12, 1998 Today in 1998 Intel debuted its first dedicated graphics card, the i740. A dedicated (sometimes called "discrete") graphics card is a computer chip that is separate from the computer's central processing unit (CPU), whereas an integrated graphics card is part of the CPU. The i740, nicknamed "Auburn" was a failure, both in terms of sales and performance. To lower costs, it had relatively little random-access memory (RAM) built into it. Because of this it had to use the computer's general system RAM, which could not be accessed nearly as quickly as RAM built into the card. This failure, followed by the failure of its successor, the i752, in 1999 caused Intel to exit the dedicated graphics card market. This paved the way for the current duopoly of AMD and Nvidia. Recently, Intel revealed that it was trying to get back into the dedicated graphics card business with a new card expected to be released in summer of this year. If it can break the AMD-Nvidia duopoly, it could significantly alter the industry.   Sources: https://www.intel.com/pressroom/archive/releases/1998/CS021298.HTM https://www.theverge.com/2020/1/9/21058422/intel-dg1-discrete-gpu-graphics-card-announcement-ces-2020 https://www.tomshardware.com/picturestory/693-intel-graphics-evolution.html https://www.digitaltrends.com/computing/intel-xe-graphics-everything-you-need-to-know/ How can we improve the Market Sum? Tell us at marketsum@investopedia.com Go here to view  this newsletter in your browser. Enjoy the Market Sum? 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