Monthly update: July 2022
July Performance: -26.94%
It's months like July which really test you as a trader. My worst ever month since starting out back in 2018. So what happened? Aside from the economic climate still being very volatile I made some truly shocking errors which I can only apologise for.
Around the middle of the month I decided to change strategy, markets around the globe continued to tumble and so I attempted to take advantage by shorting the Dow Jones, S&P500, Nasdaq and FTSE100. I entered what I thought were SELL orders only to realise far too late (once stop loss triggers had been hit) that I had infact accidentally placed BUY orders.
July was always likely to be another disappointing month but this further compounded the misery. I really am sorry. Then of course once I entered the correct SELL orders we began to see a bear market rally and so our positions are currently negative. Oh the joys!
I honestly don't think we have seen the bottom yet, despite what Mr Biden and his gang might say, they won't admit to being in a recession despite the facts seemingly stating otherwise and the great Dr Michael Burry (of The Big Short fame) seems to agree with me (see this article covering the topic on Seeking Alpha). The Financial Times have also cited that history says the US stock market has further to fall so I'm in good company and will monitor our sell orders very closely.
The stock market bounced back from its worst first half in 52 years with its best month since November 2020, as the S&P 500 index gained 9.1% in July, trimming its year-to-date losses to 13.3%.
Stocks shrugged off news this week of the GDP contracting for a second straight quarter, a common indicator of a looming recession, and another 75 basis point interest rate hike by the Federal Reserve on Wednesday. The S&P 500 gained 5.3% in just the last three trading days of the month. Some experts think recessionary fears were already priced in, and second-quarter earnings over the last couple weeks have generally been better than the low expectations investors were bracing for.
The top-performing stock in the S&P 500 was Enphase Energy (ENPH), a solar technology company which jumped 46%, mostly in the last three days after it reported second-quarter earnings. Its revenue for the quarter grew 68% year over year to $530 million, and net profit nearly doubled to $77 million. The biggest loser in the S&P 500 was Colorado-based gold miner Newmont Corp. (NEM), which fell 24% and underperformed its earnings expectations on Monday.
Growth stocks, among the hardest hit this year, are among the month’s winners. Cryptocurrency exchange Coinbase (COIN) and electric carmaker Rivian (RIVN) both gained more than 30% in July. They're now down 75% and 67%, respectively, for 2022.
July’s biggest winner was Israeli fintech Pagaya Technologies (PGY), which gained 494% after becoming the newest flavor-of-the-month meme stock for a short squeeze fueled by social media. Pagaya, which uses artificial intelligence for credit approvals, went public in a SPAC merger in June and lost more than 70% in its first few weeks until it shot up 819% since July 19 after a registration statement filed with the SEC revealed it had a float of only 945,000 shares out of 654 million shares outstanding. Pagaya recorded $475 million in revenue on a net loss of $209 million in 2021 and now has a market cap of $12 billion.
In the mid cap range, including stocks between $2 billion and $10 billion in market cap, Chinese software provider WeTrade Group (WETG) led the way, tripling in July. Its main catalyst was a July 18 announcement that it was uplisting to the Nasdaq and offering 10 million shares of stock at $4 per share. Its shares finished the month at $17.32.
Middle-market businesses with crypto exposure also thrived as bitcoin gained close to 20% in July after falling 60% and losing $530 billion in market value in the first half of 2022. Microstrategy (MSTR), a software company which owns about $3 billion worth of bitcoin, and crypto bank Silvergate Capital (SI) both rose 74%.
No midcap business fell more than 30% in July, but the worst performer was MSP Recovery (MSPR), which is down 84% since it went public via a SPAC merger in May. The company, which aims to profit from litigation around Medicare and Medicaid insurance claims, generated just $14.6 million in revenue in 2021, making investors roll their eyes at its implied $32.6 billion valuation at its IPO.
Among small-cap stocks with market values between $300 million and $2 billion, few have fallen farther than Bausch Health (BHC), which crashed 41% in one day on Thursday after a U.S. District Court judge indicated that he will invalidate some of its patents related to its Xifaxan drug to treat irritable bowel syndrome. Competitor Norwich Pharmaceuticals is proposing a generic version of the drug, which generated $1.6 billion in sales for Bausch Health in 2021, 19% of its revenue.
Bausch Health is a Canadian drug developer that was worth as much as $90 billion at its peak in August 2015, when it was known as Valeant Pharmaceuticals, but fell victim to $30 billion in debt after a slew of acquisitions and public backlash to its practices of buying drugs and hiking their prices exponentially. It plunged more than 90% in a span of less than a year, costing hedge funds like Bill Ackman’s Pershing Square billions. It changed its name in 2018 to distance itself from that history, but its stock has kept sliding. It’s down another 83% this year to $4.62 per share, its lowest since 1995.
Most small caps fared much better in July, with the Russell 2000 index up 10.4%, and ten companies doubled in value. Bitcoin miner Marathon Digital (MARA) rose 143% after striking a deal to increase its power supply, and Rhythm Pharmaceuticals (RYTM) tripled thanks to promising data for a drug to treat obesity.
So, another interesting month I am sure you will agree. I would like to apologise once again for the errors made this month and can assure you I am doing all I can to get us back to winning ways. It will be a huge challenge to finish the year in profit, sadly it seems it is now a matter of damage limitation.
As ever, please do get in touch if you have any queries.
Best wishes to you all and thank you for your trust and patience.