A 37 Million Share Print Took Wall Street by Storm: Taking Stock

(Bloomberg) -- It seems like only yesterday when I published a Taking Stock column titled "A $100 Billion Giant Is Spiraling and No One Cares" that issued an unofficial code red on shares of General Electric -- except that it was actually a month and a half ago, when GE was trading well above $11.

The industrial conglomerate that’s been a bastion of corporate America for well over a century has, since then, erased about a quarter of its market value (currently down over 1% pre-market to $8.48) on worries over cash-flow shortfalls, rising liabilities, deteriorating results at several business segments and even a federal accounting probe, among other concerns.

This is the same company that for decades boasted about how it "brings good things to life" and yet its stock hasn’t shown any signs of life for close to two years now.

Friday’s session was one of the most bloodcurdling for any holder of a GE-related investment vehicle: The common equity plummeted as much as 10% at one point as it edged closer to a $7 handle (it ended up closing down 5.7% to $8.58); the preferred shares sank to a record low of under 85 cents on the dollar and now yield more than some distressed credits; and the senior unsecured bonds, which were among the most active in the IG market that day, were trading ~20bps wider along with the rest of the curve.

But the thing that caught my attention happened the night before, when a giant chunk of shares hit the tape at the same time -- 37.05 million shares priced at $9.00 on Thursday at 4:42pm, to be exact, which means some holder likely sold more than $333 million of stock in one fell swoop.

For perspective, that one trade accounted for 28% of Thursday’s total volume in GE, which was already exceptionally high versus the norm. In fact, there were days this year where GE didn’t trade more than 37 million shares in total.

Scrolling through the terminal’s "Top Trades" function (AQR) through the beginning of the year shows that this particular trade in GE was the largest by volume aside from a 37.44 million share block on March 16 that hit just 13 seconds after the closing bell. The latter may be less exciting as I have to assume it was a market-on-close (MOC) instead of a major shareholder slashing their stake, perhaps even all of it in what trading lingo is known as a "clean up" trade.

And it wasn’t just that one trade -- just two hours later, a smattering of blocks hit the tape, including multiple prints at 6:46pm: 11 million, 4 million, 4 million, 2 million, 1.1 million, 800,000, and several smaller ones that all priced at $9.20.

I’ve spoken to a lot of sell-side and buy-side traders since that first gargantuan block hit the tape on Thursday and the narrative suggests that this was a "clean up" where an institutional seller finally rid themselves of any GE holdings from their portfolio.

But who was it?

It’s impossible to know, really, unless they fessed up to it directly, though the same few names did get thrown around. If you dig into the most recent filings, you’ll see that around 25 funds had the ability to sell 37 million shares (most of these are as of June 30, so it’s a bit outdated but it’s all we have until the 13-Fs start to roll in later this week).

It could have been one of the top ten holders, like Capital Group or Franklin Resources, or it could have been an activist like Trian, or even a hedge fund like Viking Global.

I’m sure there are other longs looking to get out as things spin out of control. I’m also sure that there are large value investors sniffing around in an attempt to time the bottom right, like some did in March 2009 when shares closed at a demonic-looking low of $6.66.

But sentiment is clearly worsening, as analysts not named Steve Tusa (the uber bear at JPMorgan) are starting to predict some dire scenarios, like Gordon Haskett’s John Inch (who recently made the move from Deutsche Bank) who last week said he sees shares potentially sinking further to $5, and that’s with the assumption that GE Capital doesn’t ultimately face insolvency.

GE should continue to be one of the biggest market stories of the year, or at least one of the most confounding. I personally think most of the sell side has thrown up their hands in either disgust or despair (21 of the 24 analysts who cover the stock have a buy or a hold rating).

I’d recommend keeping an eye out for any unusually large block trades in the near future, as that may hold the real clues as to when the largest of institutions finally capitulate so that the real bottoming process can finally get underway.

Sectors in Focus Today

• Software sector may catch a bid after two big deals, starting with SAP buying Qualtrics for $8 billion and private equity purchasing cloud name Apptio for nearly $2 billion
• Tobacco stocks Altria and Philip Morris are looking weaker after that late Friday report that said the FDA will pursue a ban on menthol cigarettes; British American Tobacco plunged as much as 11% to its lowest level in over four years in London in reaction to the news
• California-exposed utilities PG&E and Edison International are looking lower again after the prior session’s plunge (down 16% and 12%, respectively, on Friday) as firefighters struggle to contain the California wildfires
• Chinese e-commerce after Alibaba set a Singles’ Day record with $30.7 billion in sale, though the stock is down modestly in the pre-market; one bullish analyst at Baird said the GMV growth of ~27% y/y was a deceleration from last year’s 39t% growth and slightly below the analyst’s expectation of +30%-40%
• The Liberty Media umbrella (like LTRPA, LSXMK, FWONK) after Barron’s put "The Malone Matrix" on this weekend’s cover, and just days before the company hosts its analyst meeting
• Defense stocks thanks to a Barron’s interview with BofAML analyst Ron Epstein that talks about the "next boom" for the space, specifically for Boeing, Lockheed Martin, and General Dynamics
• Semis ahead of several huge presentations at the UBS Global Tech conference from the likes of Intel, Texas Instruments, Micron, and KLA-Tencor
• Sectors that may move with earnings over the next ~24 hours include hardline retailers (Home Depot), homebuilders (Beazer), auto retail (Advance Auto Parts), pot stocks (Cronos), restaurant suppliers (Aramark), and offshore supply vessels (Tidewater)

Your 63-Hour ICYMI

Here’s some stuff you might have missed since Friday’s close:

Trump slammed the country’s forest management policies for the California wildfires, drawing the ire of celebrities like Leonardo DiCaprio, Katy Perry, Alyssa Milano, Patricia Arquette, and Zach Braff ("Honestly thought this was one was from a parody account"); A WSJ opinion piece said Hillary will run again and "easily capture" the 2020 nomination; Barron’s had a feature story in the magazine about why "qualified opportunity zones," or designated low-income neighborhoods, may be the next hot thing in investing; Ken Taubes, manager of the $5 billion Pioneer Bond fund (PIOBX) for the past 20 years, said in a Barron’s interview that higher rates are already priced in; the WSJ’s "Saturday Essay" recounted the one time American troops fought Russians, which was at the end of World War I, "and they lost"; the Kansas City Chiefs lost their first coin toss of the season after winning the last nine in a row; and someone had a College Gameday sign that said "Dabo doesn’t short the VIX"

Notes From the Sell Side

Longbow has a cautious note on neutral-rated Apple as they say the iPhone story "is showing cracks with contacts now citing weaker iPhone orders year over year and Baidu iPhones search trends highlighting a red flag." They expect sharp iPhone production cuts to hit suppliers, specifically noting read through for companies with >10% exposure to Apple like Skyworks, Qorvo, Broadcom, and ON Semiconductor.

Morgan Stanley recommends buying midcap banks after the recent selloff as fundamentals remain relatively solid ("still-positive NIM expansion from further Fed rate hikes, excellent credit quality, and mid-single-digit loan growth, despite growing nonbank competition"). The analysts upgrade both Comerica and Synovus to an overweight and downgrade Cullen/Frost to an underweight.

Goldman Sachs has initiated on the airlines with an attractive view on expectations for stronger revenue trends in 2019 coupled with a focus on cost control "to drive higher industry operating margins for the first time since 2015 despite fuel headwinds." Top calls are buy ratings on American Airlines and Alaska Air and a sell on Hawaiian Holdings.

Tick-by-Tick Guide to Today’s Actionable Events

• Today -- U.S. bond market closed for Veterans Day
• Today -- AASLD meeting with data from MDGL, GLMD, VKTX/LGND, and others
• Today -- IPO lockup expiry: BLNK
• 8:15am -- TSRO investor meeting
• 8:30am -- SAP CEO Bill McDermott and Qualtrics CEO Ryan Smith on Bloomberg TV
• 11:45am -- MU at UBS Global Tech Conference
• 12:30pm -- INTC at UBS Global Tech Conference
• 2:00pm -- KLAC, NOW at UBS Global Tech Conference
• 2:30pm -- Fed’s Daly speaks on economic outlook
• 3:00pm -- RHT at UBS Global Tech Conference
• 4:01pm -- ATHN earnings
• 4:30pm -- TXN at UBS Global Tech Conference
• 5:30pm -- TDW earnings (roughly)
• 6:00pm -- YY earnings (roughly)
• 7:00pm -- SHOP CEO Tobias Lutke at WSJ Tech event
• 8:15pm -- Giants at Niners (-3)
• 9:30pm -- Alphabet CFO Ruth Porat, News Corp CEO Robert Thomson, and AT&T CEO Randall Stephenson at WSJ Tech event

To contact the reporter on this story: Arie Shapira in New York at ashapira3@bloomberg.net

To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net, Steven Fromm

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