It was another disappointing night for those looking for heavy volatility out of those reporting earnings – the trio of biotech stocks many were looking at, Gilead, Illumina and Amgen, had varying results, but they didn’t show the kind of bounce that some people were expecting.
In after-hours action Illumina was moving around 7 percent, short of the 11 to 12 percent move the options market was looking for, and Gilead was up around 3 to 4 percent, less than the six percent gain that the options market had factored in. Following the disappointment among those betting on volatility post Netflix-earnings — and the stock still moved a lot, just nowhere near as much as expected — it raises questions about whether some investors might start to temper expectations when it comes to overall volatility, because putting down money on a big swing has been a bit of a loser so far.
The earnings season is young, of course, so there’s still time and lots of momentum stocks out there that can surprise on the upside or downside, so there’s lots to come. The most notable, of course, is Apple, due out after Wednesday’s close. Some positive analyst revision activity of late suggests that the company’s results could surprise on the upside, even if this quarter is generally a transition one for the most valuable U.S. company because it’s a time when it is gearing up for new products later in the year.
What will be notable to watch are the parade of results that lean on the snow as a crutch for an overall poor performance.
Embattled retailer bebe showed some of that with their warning on Tuesday. While weather may have had something to do with it, it’s more notable that the retailer has posted losses for six straight quarters and their EBIT margins are of course negative when lots of their peers are still doing relatively well – be it Ann Taylor, the Body Shop, L Group, or what-have-you.
The myopic expectation that companies will get away with saying the snow is the cause of all their problems is on a par with Olaf, the snowman from Frozen, and his optimistic expectations for what life would be like for a snowman in summer. (Let it go, folks. Let it go.)
Meanwhile, several sectors including industrials and transports are hitting all-time highs again. It appears to be only a matter of time before the S&P 500 rebounds to its all-time high and puts it in striking distance of moving past 1900, a sign of health in the economy even as there are concerns about China’s growth percolating within the likes of IBM’s report and next week’s US GDP figure isn’t going to come in all that great either.
Where’s the juice coming from? As Reuters correspondent Caroline Humer pointed out in a story overnight, for health care names it’s from M&A activity that culminated in the Valeant bid for Allergan, one that Mike O’Rourke of JonesTrading compared unfavorably to the MCI/WorldCom deal all those years ago that represented the apex (and the nadir, really) of the telecom M&A boom of the late 1990s.
Big-cap pharma has been left behind a bit when compared with biotech – the biotech names are up about 125 percent in the last two-plus years even with the recent selloff, while the pharma giants have gained about 55 percent. The thing is, the latter gain is still pretty solid, so there’s that.