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Dow Slides as Profit-Chasing Billionaires Rush for the Exit

Last Updated September 23, 2020 2:04 PM
Ben Brown
Last Updated September 23, 2020 2:04 PM
  • The Dow Jones Industrial Average (DJIA) turned lower after a strong week for stocks.
  • Swiss bank UBS reports that billionaire clients are starting to cash out after scoring record gains.
  • The bank’s head of ‘Ultra High Net Worth’ now expects equities to slide in the next six months.

Stocks took a breather on Thursday following multiple straight days of gains. The Dow Jones Industrial Average (DJIA) fell as much as 200 points when the market opened.

And this time it could be more than just a blip. A new report out of Swiss bank UBS suggests that the world’s richest investors are getting out the market  at these highs.

The bank’s head of Ultra High Net Worth, Josef Stadler, said his richest clients made a fortune since the March selloff. Now they’re cashing out.

They bought, for example, U.S. equities, but they didn’t buy $50 million. They bought a billion-plus of those equities to rebalance. And they made a lot of money.

The S&P 500 has recovered 44% since the March lows, netting enormous profits for the world’s elite. Having retraced almost the entire drop, billionaires are taking their profits.

Dow in free-fall after brutal Asian session

U.S. stocks opened to moderate losses, following Asian and European markets lower.

As of 9:43 am ET, the Dow had fallen 162.95 points or 0.61% to 26,707.15.

dow jones today
The Dow opened lower after several straight days of gains. | Source: Yahoo Finance

The move down was initially triggered by rising tensions between the U.S. and China. The two superpowers continue to clash over Hong Kong, Huawei, and territory in the South China Sea.

The S&P 500 slipped 0.69% to 3,204.29, while the Nasdaq plunged 1.03% to 10,443.45.

Smart Money heads for the stock market exit

In an interview with Reuters, Stadler gave an insight into the activity of billionaire ‘smart money’ during the last few months. He explained how the world’s richest took out enormous loans at the bottom of the March dip and piled into equities.

We had record loans written during the middle of March and the middle of April, of significant family offices who asked us for balance sheet and then went into the market.

A UBS survey of 120 family offices, with an average family wealth of $1.6 billion, revealed that the world’s wealthiest are now starting to sell. Stadler said they’re using profits to buy residential real estate and make private equity deals.

The world’s richest are cashing out of the market after taking quick profits. | Source: Shutterstock.com

The phenomenal outflow of ‘smart money’ means the market will struggle to push higher, according to Stradler. He expects equities to ‘soften’ over the next six months.

Disappointing China data weighs on the Dow

There’s more troubling news out of Asia this morning. Chinese stocks dumped more than 4%  overnight after mixed economic data.

The good news is China’s GDP grew by 3.2% in the second-quarter – beating expectations by a huge margin. But retail sales in June fell by 1.8% year-over-year. Analysts were expecting a return to growth. Helen Qiao, chief Greater China economist at Bank of America Securities, explains why this makes traders nervous.

The problem is, [recovery] is still uneven. As the reopening continues we’re seeing that manufacturing side has clearly gone up very quickly. The rebound has been coming fast and furious. But at the same time… retail sales were not doing that well.

The consumer is still hesitant to spend, especially on discretionary services like dining out and travel. Arguably, the economy cannot return to normal without the consumer on board.

People still hold the fear of going out and traveling.

Johanna Chua, head of Asia economics and strategy at Citigroup said the lagging consumer data could also have knock on effect on jobs .

On the domestic consumption side, there’s some engrained concerns about the job market.

Earnings focus today: Morgan Stanley and Netflix

Wall Street banks have smashed expectations this week so far. JP Morgan, Citigroup, and Goldman Sachs all came out and surprised to the upside with phenomenal trading revenue. Investors will be hoping for more of the same when Morgan Stanley reports earnings later this morning.

The real test comes after the bell tonight as Netflix steps into the spotlight. The pressure is on tech companies to deliver big, after driving the majority of the stock market’s gains in the second-quarter.

Netflix is expected to spring a surprise with its latest earnings call. | Source: REUTERS/Wolfgang Rattay

Netflix is expecting a further 7.5 million new paid subscribers in Q2. But execs admitted this was “mostly guesswork” with such an uncertain backdrop. Last time out, Netflix doubled subscriber expectations. Analysts at Wedbush expect a similar surprise this time .

We anticipate meaningful upside to subscriber additions and revenue, as shelter in place around the world has clearly driven streaming usage and viewership up.

The company reports earnings after the bell tonight.