Stock Market Optimism Builds, $NKE Soars, $ETH Slumps

Hello and welcome to the sentiment investing family, thank you for making it here! If this is your first time reading this newsletter, here’s how it works: we scrape articles from around the internet and write programs to detect sentiment trends about stocks, crypto’s, and industries. In this installment, we analyzed more than 3,000 finance articles published last week to gauge the mood of the market’s conversation. The goal: to help give you an investing edge and reduce your information biases by quantifying market news in aggregate. Here’s a breakdown of how this report is written:

  1. Last Week’s Market Conversation
  2. Best and Worst Ticker Sentiment
  3. Market Mood Outlook

1. Last Week’s Market Conversation📰

Market Summary: New Stock High’s and Positive Outlook

After a tough stretch for the markets in the weeks prior, stocks came back to rally last week, carrying the S&P 500 and NASDAQ indexes up more than 3% each to new all-time high prices. One major measure of short-term investor volatility expectations — the CBOE Volatility Index ($VIX) — also fell back to Earth, signaling more investor confidence behind optimistic earnings guidance and Fed Chairman Jerome Powell’s positive comments about inflation during his testimony to Congress last Tuesday.1 According to John Hancock Investments, nearly twice as many companies that have issued guidance prior to their upcoming July earnings releases have raised their expectations compared with the number that lowered their forecasts.2

In short: current stock market sentiment appears cautiously optimistic. On the other hand, the global cryptocurrency market has continued to take a beating over the past 7 days behind increased mining restrictions in China — Bitcoin has now traded in the $30K-$40K price range for over a month, with minimal signs of a breakout any time soon. In terms of news conversation, here’s a heatmap of last week’s article sentiment:

Distribution of average sentiment and time-sense across stock market news articles published this week. Last week’s plot here.

By the numbers, overall stock market news sentiment became moderately optimistic again last week, jumping more than 50% from 0.07 to 0.15 (on a scale from -1.0 to +1.0). In terms of time-sense expressed (ie. past- vs. future-oriented language), stock news was moderately speculative last week, the average article scoring a 0.29 (on a scale from -1.0 to +1.0) — a slight change from the 0.33 scored the week prior. With the exception of two weeks ago, stock market news sentiment has remained relatively optimistic and speculative over the past 8 weeks; a bullish combination and a good sign for the markets in the short term.

Market Mentions: Tickers Making Headlines📊

In headline volume, here is a look at the most talked-about tickers in last week’s news. Many of the tickers in the top 10 are usual suspects: the five big-tech FAANG stocks — Facebook ($FB), Apple ($AAPL), Amazon ($AMZN), Netflix ($NFLX), and Google ($GOOG) — as well as other tech favorites Tesla ($TSLA) and Microsoft ($MSFT). Microsoft in particular saw a bump in headlines as it became the second trillion-dollar company ever last week; the stock price and sentiment seem to reflect fair value.

As the global semiconductor shortage continues to grind onwards, big-name chipmakers Nvidia ($NVDA), Advanced Micro Devices ($AMD), and Intel Corp ($INTC) have also frequented the list over the past two months; AMD saw the highest sentiment and time-sense (ie. “bullishness”) of any ticker in the top 10 as analysts suggest the stock is trading at a discount and could be ready for a breakout if the company’s upcoming merger with Xilinx is approved.

The only new face to the top 10 list last week was Visa Inc. ($V) as the company struck a deal to purchase Swedish “open banking” platform Tink for $2.1B. Visa attempted to buy Tink’s American rival Plaid earlier this month, but its bid was denied by U.S. regulators. Some notable faces missing from the list for the first time in a while were Gamestop ($GME) and AMC Entertainment ($AMC); potentially a sign that interest in meme stocks is shifting.👀 The complete visualization of top-10 talked about tickers shown here:

List of tickers with highest mention volume in last week’s stock market news + corresponding sentiment and time-sense.

2. Sentiment Winners and Losers

Each and every week we quantify news sentiment for tickers across four sentiment metrics: optimism, pessimism, speculation (ie. future-focused language), and reaction (ie. past-oriented language). We measure each metric by tracking the frequency of certain words expressed about each ticker to get a feel for the mood around each. By our analysis, here’s a look at which tickers scored the highest (and lowest) across these metrics in last week’s news:

Most Optimistic😀 and Pessimistic😒 Tickers

Note: relative metrics measure the difference between optimism and pessimism, whereas absolute metrics just measure each on their own.

Invesco QQQ Trust S1 ($QQQ*): A tracker of the Nasdaq 100, the Invesco QQQ Trust Series 1 was last week’s most optimistic ticker in the news. This came on the back of exceedingly optimistic articles from SeekingAlpha and Nasdaq. According to the articles, the ETF has trended upwards for most of the past 30 days and shows no signs of topping out any time soon; things are looking bullish and “another upside run” is starting to look probable. QQQ is currently the 5th largest ETF on the market (and the biggest non-S&P focused ETF), so positive movement here bodes well for the stock market as a whole.

Ethereum ($ETH): On the flip side of the pillow, Ethereum was the most pessimistic ticker in last week’s news. The second-largest cryptocurrency in the world, $ETH has trended continuously downwards over the past month since reaching an all-time-high of $4400 (it’s currently trading under $2000, a drop of more than 60%). While Ethereum has received optimistic headlines over the past week, some of the poor sentiment seems to be delayed from the week prior, and much of it can be attributed to this hit-piece about Ethereum-creator Vitalik Buterik from Forbes:

Ethereum Creator Loses Over $400 Million As Crypto Market Collapses” | Forbes 6/21/21

Most Speculative🤔⏩ and Reactive😮⏮️ Tickers

Note: relative metrics measure the difference between speculation and reaction, whereas absolute metrics just measure each on their own.

Costco Inc. ($COST): The wholesale retail giant Costco was last week’s most speculative ticker in the news after finishing the week up more than 3% (which accounts for most of $COST’s 30-day gain of 4%). Part of the Costco coverage can be attributed to the upcoming earnings season, as Zacks released earnings preview coverage for the company, and SeekingAlpha wrote a deep dive report about the intrinsic value of Costco as a company. Overall, analysts say that $COST entry points may be forming, and guidance suggests that the company should be set to outperform estimates when earnings hit in mid-July.

Nike Inc. ($NKE): The kick of athletic apparel is back folks. Nike was hands down last week’s most reactive ticker (and second-most optimistic ticker) in the news as the company stock surged 15% to a new all-time high on reports of a higher-than-expected $50B (!) sales outlook. After the company reported earnings last Thursday, the number of Nike headlines jumped 700% last week compared to the previous. According to the earnings report, $NKE’s year-over-year digital sales growth has jumped 147%. Nike’s most optimistic article:

“Jim Cramer says to buy Nike on a pullback after its recent blowout quarter” | CNBC 6/25/21

Biggest Mood Swings and Changes 🎭🔀

Biggest changes in news sentiment and time-sense last week compared to the previous week.

Finally, the graphs above visualize the tickers with the biggest changes across each of our four sentiment metrics last week compared to the previous week. Notably, QQQ Invesco Trust ($QQQ) increased from near-neutral to 0.78 sentiment expressed, Ripple ($XRP) fell from 0.40 to -0.13 sentiment expressed, Texas Instruments flew from -0.75 to 0.48 time-sense expressed (a shift from high reaction to high speculation), and Fidelity ($FIS) dropped from more than 0.68 to -0.31 time-sense expressed. Overall, more tickers increased in optimism expressed than the number of tickers that increased in pessimism (a good sign for market sentiment, signaling that overall mood is trending in the positive direction).

3. Market Mood Outlook

Though supply-chain shortages remain an issue throughout the U.S. economy, the Federal Reserve remains adamant about inflation being a “transitory issue”; growing pains for a post-COVID-19 economy. Stock market sentiment reflected in the news last week showed positive signs, so Jerome Powell’s reassurance seems to be working; at least for the time being. The cryptocurrency market remains in flux, and will likely continue this way until we find clear footing from China on their crypto policies — as for myself, I’ll be waiting to take any investment action until we see some clear signs of recovery (ie. $BTC moving closer to $40K again and $ETH eclipsing $2K).

Looking ahead, we expect market sentiment to continue trending upwards into earnings season behind optimistic guidance and a reopening economy. Historically, the first day of July has been the most bullish trading day of the year — the S&P 500 has risen 84% of the time on 7/1 since 2000. June’s monthly job report will be out Friday, which should hopefully add fuel to the fodder. That’s all for today — thanks for reading this roundup, and keep an eye out this week for another Sentiment Spotlight report come Thursday!🙏

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Morning Brew ☕️ @MorningBrew

Nike in Q4• 141% growth in North American sales vs Q3• 41% growth in digital sales YoY• Stock is up 13.6% today

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June 25th 2021

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