Call me crazy, but I think it’s at least possible that the black swan-ish slide in shares of J&J might have caused something to “snap” midway through the U.S. cash session on Friday.
As you’re probably aware, Reuters released a bombshell investigative report today and while you’re certainly encouraged to read it in its entirety if for no other reason than that someone clearly put a lot of effort into writing it, all you really need is the title. To wit:
Johnson & Johnson knew for decades that asbestos lurked in its Baby Powder
Ok, so they were knowingly harboring asbestos in the baby powder, a truly unfortunate revelation that makes me want to fling open the doors to the cabinets in the bathroom and make sure there are no J&J products in there (What’s in the baby shampoo you monsters?!)
Investors are obviously selling first and ordering the free Meso book later, because the move in the shares looks entirely anomalous from where I’m sitting – although I’m no J&J analyst.
(Bloomberg)
This, frankly, is quite something to behold:
It looks to me like it’s rippling across other names. I’m reasonably sure I’ll get some irritated e-mail for suggesting this, but you’d be forgiven for asking if “someone” who isn’t human and thereby lacks the cognitive capacity to understand the idiosyncratic nuance of the story, might be selling other things by mistake on the assumption that something more systemic and/or sinister is afoot (although, I’m not sure what’s more “sinister” than knowingly hiding asbestos in baby powder):
(Bloomberg)
But you know what? Really it doesn’t matter if that specific contention is any semblance of true. Because the problem with modern market structure is that when you get a black swan move in a stalwart like J&J that naturally weighs on the rest of market, it definitely does have the potential to trigger systematic selling as key levels/strikes are breached. That, in turn, can start tipping dominos and deepen the selloff.
(Bloomberg)
what’re their bonds doing today?
My opinion of course, but since this morning (night there) ndx futures were down from -1% to -1.2%. Bad Chinese data then Adbe and Costco. Adbe and Costco were behaving decently till today, among the few stocks holding well in a falling ndx. They soured sentiment, something like “even the good ones now are missing”. Macro US data weren’t bad, but futures couldn’t recover losses. There was no enthusiasm.
Bad week, spx made intraday runs to 2700 but couldn’t close above 2655. Financials down. Objectively macro data in US aren’t so bad, still enough good. But sentiment is negative. Investors really see dark clouds ahead judging from their behavior. Problem is: are these prices informative? They are telling us something, some private info about the real state of the economy? Or investors are confused and price ogres that are only in their mind?
Is it 2014-15 and everything will go fine in the end? Or something more ominous is developing?
Was the trade war issue simply a cover for a giant distribution? We were thinking that was the problem, now we realize it’s more than that?
At 3% 10Yr and expected EPS 160-170 I still believe there are not the conditions for a bear market, but who am I? Do I really know something? Doubts push us to check prices, and at some point we trust more the prices than what we think to know. This becomes self fulfilling, we imitate one another, thinking we are trading info when in reality it could be just huge noise.
All true…and this is part of a larger market driver (in my view), that is the index funds.
Folks who have been blinded by Buffett, Bogle, and others about how wonderful index funds are have been in the dark about the effects they have had in moving the markets higher. It’s an upward feedback loop:
Index funds get net inflows
Index funds buy across the board, more heavily acquiring shares in those names more heavily weighted in the index (look at those large cap tech names in the top 10 of the S&P comprising 15% of the weighting of the entire index)
Index goes higher
More mom and pop investors have their monthly auto deposits to their index fund taken
Lather, rinse, repeat.
Now, mom and pop, not understanding how everyone plowing in to Apple following Buffet over the past year helped drive the markets and index funds higher are likewise in the dark that everything works just as well in reverse – as we are now seeing. Net outflows from the index funds and names like Apple and Facebook being hammered are magnified when the index funds then have to sell, adding fuel to the downward movement.
https://www.marketwatch.com/story/blackrock-posts-first-net-outflow-in-three-years-2018-10-16
Oh, and who currently has the #4 slot in the S&P 500? You guessed it – JNJ.
How can people do things like the article suggests. Personally I could not do this. I would rather be homeless than allow others to be at risk.
I’m really curious to know if those of them that knew about it, used it?
I follow JNJ. I read more detail than this including studies from their talc miner records over a year ago. There is nothing really new here except an author. In fact there is a lot if data about asbestos that obviously (decades ago) everyone knew. It seems JNJ sticks to its credo.