Softbank's 'NASDAQ Whale' and the S&P 500's Summer Rally

2020′s summer rally for the S&P 500 (Index: SPX) came to a crashing end on 3 September 2020. It turns out a good portion of the rally that preceded its sudden was juiced by an unusual investment strategy launched by Japan’s SoftBank, a venture capital investment bank that appears to operate similarly to a hedge fund.

In that strategy, SoftBank took a portion of the proceeds it obtained from the sales of its stakes in T-Mobile (NASDAQ: TMUS) and Alibaba to buy both shares and call options in firms like Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), Tesla (NASDAQ: TSLA), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOGL and GOOG). The crash came when SoftBank unwound its trades in these NASDAQ-exchange based stocks during the first two weeks of September 2020.

Most of the news articles reporting the story have focused on what SoftBank was doing during the month of August, but we had a different question. When did SoftBank’s ‘NASDAQ whale’ start this rally-juicing strategy?

Previously, we noted two major shifts in the apparent value of the amplification factor we use in our dividend-based model for projecting future stock prices. The first came on 7 July 2020 when its value suddenly shifted from 1.5 to 0.5, the second a week later on 14 July 2020, when it suddenly shifted again, this time to a value of -0.5. The alternative futures chart we use to project future potential trajectories for the S&P 500 shows the corresponding adjustments in those trajectories at these dates:

We think SoftBank’s NASDAQ whale’s investing strategy started in earnest at the time of the first shift as funds from SoftBank’s 24 June 2020 sale of its T-Mobile holdings started to become available, which then ramped up to the level it would sustain through the end of August in the following week.

With the unwinding of its trades in September, we’ve taken a preliminary stab at estimating the current value of the amplification factor, which we’re tentatively putting at a value of 1.0. That shift is shown in a modified version of the alternative futures chart.

The shifts in the amplification factor are pretty amazing, especially in considering that a single trader still potentially has this kind of effect upon stock prices. Where’s FINRA and the SEC when you need them?

Looking forward, the upcoming week will hopefully provide enough additional data for us to more firmly estimate the value of the amplification factor now that it seems free from the sway of SoftBank’s NASDAQ whale.

Looking backward, here are the headlines that we noted for their market-moving potential in the last week.

Tuesday, 8 September 2020

• Daily signs and portents for the U.S. economy:

• Oil prices stumble, hit June lows on Saudi price cut, COVID flare-ups
• China buys 664,000 tonnes of U.S. soybeans, biggest daily total in nearly seven weeks: USDA
• Senate aims for Thursday vote on scaled-down coronavirus aid bill

Bigger trouble developing in Eurozone, India:

• Euro zone GDP revised up, but still a record drop

• German July trade figures point to slow recovery

Indian economy projected to contract 11.8% year-on-year, Fitch domestic arm says

Bigger stimulus still rolling out in China:

• China’s new yuan loans set to rise in Aug, keep economy on recovery path: Reuters poll

Stocks end lower as tech swoon persists, Tesla in historic drop

• Nomura Warns The “Negative Gamma Tremor” Is Here

Wednesday, 9 September 2020

• Daily signs and portents for the U.S. economy:

• Oil prices fall as growing U.S. stockpiles signal bumpy demand recovery
• AstraZeneca pauses coronavirus vaccine trial, rollout doubts dent shares

• Fauci says Astrazeneca vaccine pause unfortunate, not uncommon

Bigger stimulus still developing all over:

• South Korea president to hold emergency meeting on Thursday to discuss economic stimulus
• Instant View: Bank of Canada Bank says economy will continue to require extraordinary support
• ECB to take aim at strong euro with hints of more stimulus

Wall Street ends higher on tech rally to snap three-day skid

Thursday, 10 September 2020

• Daily signs and portents for the U.S. economy:

• Oil prices slide near 2% after surprise U.S. crude stock build
• U.S. weekly jobless claims flattening; labor market recovery showing signs of fatigue

Things start looking a bit brighter for Japan, Brazil:

• Exclusive: BOJ to offer brighter view on economy as COVID crisis eases: sources
• Brazil’s retail sales in July surge to six-year high, near all-time peak

ECB minions hold steady with no new stimulus:

• European shares fall as ECB leaves policy unchanged with no new stimulus

• Euro advances after ECB’s Lagarde says exchange rate not being targeted
• ECB’s Lagarde takes benign view on growth, euro strength

Wall Street ends lower as tech struggles resume

Friday, 11 September 2020

• Daily signs and portents for the U.S. economy:

• Oil ends lower for second week as stockpiles rise, demand weakens
• U.S. budget deficit tops $3 trillion with one month left in fiscal 2020
• Used cars drive U.S. consumer prices higher; inflation pressures firming

Bigger stimulus developing in Eurozone, Philippines:

• Euro zone ministers pledge lasting fiscal support for economy
• Philippines’ Duterte signs $3.4 billion pandemic stimulus package into law

Schizophrenic ECB minions want more stimulus:

• EU governments and ECB have more to do to overcome crisis, Lagarde says
• ECB policymakers highlight risk from strong euro, nuancing Lagarde message

Dow ends higher but Wall Street posts second straight weekly drop on tech slide

Ready to compare and contrast the significant news items for the week? Barry Ritholtz’ summary of the week’s positives and negatives he found in the past week’s economics and markets news is available for your reference (although it’s extra succinct this week)!