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Wealthy investors aren’t convinced big stock market losses mean it’s a buy-the-dip moment

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It’s been a tough year to be an investor, and the wealthy are no exception. Losses in both stock and bond markets this year have made portfolio conversations between Wall Street investment advisors and clients more challenging. The most conservative portfolios have done as poorly if not worse than the riskiest portfolios, with bonds offering little in the way of protection. But if there’s a moment when the majority of wealthy, experienced investors call an all-clear on recent equities’ volatility and buy-the-dip in stocks, this isn’t looking like it.

Less than half (49%) of investors with $1 million or more in a brokerage account they self-direct think the S&P 500 will end the second quarter with a gain, according to the results of an E-Trade quarterly survey of millionaire investors conducted in April and shared exclusively with CNBC. Bullishness among this demographic dropped from 64% to 52% quarter over quarter.

“We’re coming off a really volatile quarter and as expected, bullishness took a dip in response to what was going on in the market,” said Mike Loewengart, managing director of investment strategy for Morgan Stanley’s E-Trade Capital Management.

The data points on the S&P 500 and overall sentiment are split almost right down the middle, and so they can be read as either glass half-fall or half-empty. Twenty-eight percent of investors surveyed by E-Trade expect a modest rise in stocks this quarter, and 18% think the market will end the quarter no worse than flat. But a closer look at the survey results shows that many investors remain reluctant to make a bet the bottom is in for stocks, a view this week’s selling has reinforced.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, April 6, 2022.

Brendan McDermid | Reuters

“Investors have come to grips with the new reality we collectively face as investors,” Loewengart said.

Because of what’s happening in stocks and bonds there will be opportunities to deploy capital, he says, and the survey finds there are pockets of investors seeking new opportunities, but primarily with a posture that remains defensive and geared to inflation as the dominant force in investment decisions.

“The current environment is challenging for all investors. Millionaires are a bit more seasoned and they recognize that volatility is part of the process with equities and we have to accept it. But millionaires can see through the near-term pressure and are waiting to pick their spots,” he said.

In fact, volatility is now so expected that the percentage of millionaires who said it was the biggest risk to their portfolio dropped quarter-over-quarter from 48% to 36%.

The survey was conducted during the first two weeks of April among 130 individual investors with at least $1 million in brokerage accounts, before the most recent days of deep dives in stocks, including Tuesday’s heavy selling. But it was conducted coming off what had been a brutal quarter for investors.

While the stock market was attempting a comeback on Wednesday, the first quarter declines and recent heavy days of selling have the Dow Jones Industrial Average and S&P 500 Index both more than 10% off their 52-week highs and the Nasdaq Composite off by over 20%.

The Fed and the risk of recession

A good place to begin to parse how wealthier, more experienced investors are feeling right now is with the Fed, raising interest rates to combat inflation but at the risk of pushing the economy closer to recession as a result.

More experienced investors do generally understand that the economy and the market are not the same thing, and the Fed’s hawkish shift into a rate hiking cycle is a direct byproduct of just how strong the economy is, with the Fed raising rates because the economy is overheated from a price perspective, and convinced the economy is healthy enough to handle it.

But there is a disconnect between the 38% of these wealthy investors who expect a recession and the 68% who say the economy is healthy enough for the Fed to enact rate hikes. Another finding from these investors which shows how difficult it is to assess the Fed right now is that millionaires are forecasting only two to three Fed rate hikes. This could mean one of two things: either these investors are thinking in terms of 50 basis point or 75 basis point hikes, and two to three could represent a full cycle if the Fed gets more aggressive earlier in the rate hike cycle, or they could be expecting that the Fed will push the economy into a recession after only a few rate hikes.

“That’s the key question right now for all investors, big or small, or individual or institution: will the Fed have to resort to such significant measures that the only way to tame inflation is to put the economy into a recession?” Loewengart said. “We don’t know the answer. We hear a relatively rosy sentiment from the Fed, but history doesn’t support the likelihood of a soft landing. But it is also a unique time. We are in somewhat uncharted territory right now,” he added.

While inflation, not market volatility, is the top portfolio risk cited by these investors, the 38% who cited risk of recession was a notable jump from 26% last quarter. 

Raising cash at a time of inflation

As stocks have sold off, some froth has come off the top of the market, and that has led to a decrease among millionaires who think the market is in or near a bubble, from 71% last quarter to 57% in April. But this isn’t leading them to increase risk appetite.

There was a decline among investors saying they will make no changes to their portfolios, from 44% to 36%, and that is a “significant downtick,” according to Loewengart, for a group of seasoned investors who understand that markets don’t always go up. “Investors shouldn’t make rash decisions under duress in the current market, but picking their spots and making rational decisions doesn’t mean not doing anything,” he said.

At the same time, more investors indicated they were adding to cash, not in large numbers, but a notable increase given the decline in stock prices that already had been experienced, rather than to the most beat-up sectors like technology. The percentage of millionaires who said they were adding to cash as a result of rising rates went from 24% to 31%, while there was also a 7% jump in millionaires who said they were investing in treasury inflation protected securities, from 25% to 32%.

Cash is a conundrum at a time of inflation. It is not going to help in an inflationary environment, but the concerns about ongoing market volatility explain the uptick in cash positions among investors. More volatility means more downside risk for equities and cash is just perhaps the go-to place to ride it out.

Institutional investors do say that it is always critical to have cash on hand to be ready to pounce amid depressed equity valuations.

“We are in unique times and we know cash will lose its purchasing power because of inflation, but because the front-end of the yield curve and ultra-shorts bonds have not been immune from volatility, cash gets more attention,” Loewengart said. 

“They still have confidence in the economy, just not in the market in the short-term and they are preparing for future rotations, even additional corrections down the road,” he said.

Inflation bets, but not defensive bets

The survey’s questioning on sector bets within the S&P 500 shows that inflation is dominating over any valuation analysis of stocks right now. Energy, real estate and utilities are the most popular sectors for this quarter, and some traditional defensives not as closely tied to inflation, such as health care and financials, have not fared as well as one might expect.

“Concerns about inflation are overpowering everything else including typical approaches to defensive positioning within equities,” Loewengart said. “That is why there is a high level of interest in energy, real estate and utilities but not in financials. But he added, “It is not surprising to see all the interest in sectors that stand to benefit from elevated prolonged inflation.”

Even after the heavy losses for tech stocks this year. the percentage of these investors who expressed a high level of interest in tech was lower quarter-over-quarter. The percentage of investors citing tech as their top bet for the quarter declined from 37% to 34%. On Wednesday, a day after the Nasdaq Composite posted a new low for the year, the tech-heavy index began trading over 1% higher as technology stocks rallied led by Microsoft’s strong earnings results, but trading was volatile. Microsoft was down roughly 18% this year headed into trading on Wednesday.

Among non-traditional investments, commodities are receiving a high level of interest among these investors, “a big jump and a meaningful increase,” Loewengart said. The percentage of millionaires who said they were increasing their investment in commodities doubled from 11% to 22%.

This does worry him as part of a portfolio planning process that could see its long-term lens lose out to short-term inflation worries. “When we see that the bright spots are commodities and energy stocks, that’s tough to point out to conservative investors because we don’t think they should necessarily be holding commodities as risk-averse investors. Having a meaningful position in commodities could cause problems down the road,” he said.  

“Hopefully, some of the inflationary scare is a bit overdone, and clients with a balanced portfolio will be able to return to their traditional posture, and portions of the portfolio moving in opposite directions,” Loewengart added.

But for risk-averse investors coping with losses in both stocks and bond portfolios right now, the survey sends the message from investors that there are few places to hide.

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‘Minions: The Rise of Gru’ tops $108 million as parents flock back to cinemas, kids in tow

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“Minions: The Rise of Gru” is the sequel to the 2015 film, “Minions,” and spin-off/prequel to the main “Despicable Me” film series.

Universal

Families have gone bananas for “Minions: The Rise of Gru.”

Over the weekend, the Universal and Illumination animated feature tallied more than $108 million in ticket sales.

The fifth film in the Despicable Me franchise generated an additional $93.7 million from international markets, bringing its estimated opening weekend haul to $202 million globally.

“With the incredible success of ‘Minions,’ the notion that family audiences were avoiding movie theaters due to Covid concerns can be shelved,” said Paul Dergarabedian, senior media analyst at Comscore.

Box office analysts had wondered if this segment of moviegoers was still avoiding cinemas after Disney and Pixar’s “Lightyear” took in just $51 million during its domestic debut last month, below expectations of $70 million and $85 million.

It was unclear if tough box office competition led to “Lightyear’s” less than stellar debut or if consumers were confused about the film’s release. After all, there has not been a theatrical release of a Pixar film since 2020′s “Onward.” The last three from the animation studio, “Soul,” “Luca” and “Turning Red,” were all released on streaming service Disney+.

“Minions: The Rise of Gru” represented 54% of all domestic moviegoers over the weekend, with 68% of ticket holders being part of family groups, according to data from EntTelligence.

“What this weekend has showcased is a triumphant return to cinemas by families, laying to rest any lingering and outdated pandemic narrative that parents and kids only want to watch movies at home,” said Shawn Robbins, chief analyst at BoxOffice.com. “When the right content is out there, people will show up.”

The film is expected to add another $20 million in ticket sales in the U.S. and Canada on Monday, bringing its holiday weekend total to $128 million.

Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal is the distributor of “Minions: The Rise of Gru.”

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American Airlines scheduling glitch allows pilots to drop thousands of July flights

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An American Airlines Boeing 787-9 Dreamliner approaches for a landing at the Miami International Airport on December 10, 2021 in Miami, Florida.

Joe Raedle | Getty Images

A glitch in a scheduling platform allowed American Airlines pilots to drop thousands of July assignments overnight Saturday, their union said, a headache for the airline as it tries to minimize flight disruptions during a booming travel season.

American said it didn’t expect the problem to affect its operation, including during the busy July Fourth holiday weekend. The union and airline are now discussing additional pay for pilots whose dropped trips the airline reinstated, the Allied Pilots Association said.

“As a result of this technical glitch, certain trip trading transactions were able to be processed when it shouldn’t have been permitted,” the airline said in a statement. “We already have restored the vast majority of the affected trips and do not anticipate any operational impact because of this issue.”

More than 12,000 July flights lacked either a captain, first officer, or both, after pilots dropped assignments, the Allied Pilots Association said Saturday. APA said the airline reinstated about 80% of the trips.

Pilots can routinely drop or pick up trips, but time off in the summer or holidays is hard to come by for airline employees as schedules peak to cater to strong demand.

On Saturday alone, American had more than 3,000 mainline flights scheduled and they were 93% full, according to an internal tally. Flights left unstaffed, however, are an additional strain on any airline.

The glitch occurred during a rocky start to the Fourth of July weekend when thunderstorms and staffing issues caused thousands of U.S. flight delays and hundreds of cancellations.

A similar issue occurred in 2017, when a technology problem let American’s pilots take vacation during the busy December holiday period. The carrier offered pilots 150% pay for pilots that picked up assignments.

American and its pilots’ union, whose relationship has been fraught, are in the middle of contract negotiations and the airline most recently offered nearly 17% raises through 2024.

Union president Capt. Ed Sicher, who started his term Friday, told American’s roughly 15,000 pilots Saturday night that American Airlines CEO Robert Isom said he is committed to paying an “inconvenience premium” to aviators whose trips American put back on their schedules after the glitch.

“To Mr. Isom’s credit, he called me four times today to commit to mitigating the damage from this debacle,” Sicher wrote late Saturday. “We started at a 200% override, although the details of this pay are still the subject of negotiations and there is no guarantee of the details or the amounts.”

American Airlines declined to comment on Sicher’s message to pilots.

American’s pilots have picketed recently against grueling schedules, something they want to be addressed in a new contract. Pilots at Delta and Southwest have picketed in recent weeks for similar reasons.

Sicher also struck an upbeat tone about contract talks with American, particularly about quality-of-life issues.

“Please understand that no firm commitments have yet been made, but I feel that we have, at least for the first time since negotiations began, received positive indications that management is motivated to achieve collaborative solutions to longstanding problems with our current contract that will greatly enhance our ability to trade our trips and consequently enhance our quality of life,” he wrote.

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Trump media company subpoenaed in federal criminal probe of SPAC deal

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Former U.S. President Donald Trump gives the keynote address at the Faith & Freedom Coalition during their annual “Road To Majority Policy Conference” at the Gaylord Opryland Resort & Convention Center June 17, 2022 in Nashville, Tennessee.

Seth Herald | Getty Images

Donald Trump’s media company was subpoenaed by a federal grand jury in connection with a criminal probe, according to the company with which the former president’s firm plans to merge.

Digital World Acquisition Corp. said in a filing Friday that Trump Media and Technology Group received a subpoena from the grand jury in Manhattan on Thursday. The Trump company also received a subpoena from the Securities and Exchange Commission regarding a civil probe on Monday, DWAC said.

DWAC also said some current and former TMTG employees have also recently received grand jury subpoenas.

The filing came days after DWAC said the government investigations could delay or even prevent its merger with Trump’s newly formed company, which includes Truth Social, a social media app intended to be an alternative to Twitter.

Neither TMTG nor a spokeswoman for Trump immediately responded to CNBC’s requests for comment.

The Justice Department and the SEC, which regulates the stock market, are investigating the deal between DWAC and Trump Media. By merging with DWAC, which is a kind of shell company called a special purpose acquisition company, or SPAC, Trump’s firm would gain access to potentially billions of dollars on public equities markets.

Trump established Truth Social months after Twitter banned him for his tweets on Jan. 6, 2021, when hundreds of his supporters stormed the U.S. Capitol in a bid to overturn Joe Biden’s victory in the presidential election. Trump Media’s CEO is former Rep. Devin Nunes, one of the former president’s most ardent loyalists in the Republican Party. Trump is also considering whether to run for president in the 2024 election.

Trump has continued to spread the lie that the election was stolen from him. His alleged involvement in the Jan. 6 insurrection is being probed by a House select committee that has accused the former president of being at the center of a multipronged conspiracy to block the peaceful transfer of power to Biden.

Early criticism of the Trump-DWAC deal came from Sen. Elizabeth Warren, D-Mass. In calling for an investigation, she wrote to SEC Chair Gary Gensler in November, telling him that DWAC “may have committed securities violations by holding private and undisclosed discussions about the merger as early as May 2021, while omitting this information in [SEC] filing and other public statements.”

DWAC shares are far off their highs, closing Friday at $24.20. The stock had surged above $90 in October, after the deal with Trump’s group was announced.

DWAC on Monday revealed in a securities filing that it learned June 16 that each member of its board of directors received subpoenas from the same federal grand jury.

The grand jury sought documents similar to those the SEC already requested as part of its civil probe, DWAC said. The company itself was served with a subpoena a week ago with similar requests, along with other requests relating to communications, individuals and information involving Rocket One Capital.

DWAC also revealed Monday that a board member, Bruce J. Garelick, had told management that he would quit the board during the previous week. Garelick said his resignation “was not the result of any disagreement with Digital World’s operations, policies or practices,” according to the company filing.

— CNBC’s Kevin Breuninger and Thomas Franck contributed to this story.

This is breaking news. Please check back for updates.

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