Aug 1 (Reuters) – A barrage of bearish options contracts
costing an estimated $8 million and nearly certain to expire
worthless at the end of Friday’s session were purchased across
multiple stocks Friday afternoon in a move that traders said
made no sense.
After 1 p.m. EDT (1700 GMT), more than 700,000 put options
contracts were traded across a number of different stocks,
including Priceline, Chipotle Mexican Grill and
others, most of which expire at the end of Friday’s trading,
according to Henry Schwartz, president of Trade Alert LLC.
The jobs report takes a bit of heat off of Thursday’s selloff, which was predicated in part on some nonsense out of Europe and more importantly some kind of growing consensus that the economy is getting hot enough that it might force the Federal Reserve to start raising rates a bit earlier than expected, given a sharp and unexpected rise in the employment cost index on Thursday. And while it’s fair to suggest the stock market has gotten a bit ahead of itself when the Fed is rapidly moving toward the end of its stimulus policies, it’s also possible that stocks have gotten ahead of themselves for a far more prosaic reason – the economy isn’t strong enough to support the kind of valuations we’re seeing in equities right now.
That’s not to say we’ve got bubbles all over the place in stocks – they’re pretty few and far between – but credit standards in various places have loosened, and if the Fed starts raising rates we’re going to see a pretty quick reversal of that before long. There are significant signs of concern emerging in places like the high yield market, which has dropped off sharply in recent days, particularly among the weakest credits, and the housing and auto markets, which are better leading indicators than the jobs data, also suggest that the slack credit standards may end up hitting a wall before long.
To paraphrase Kevin Costner in Bull Durham, we’re dealing with a lot of stuff here. The U.S. economy did end up rebounding in the second quarter, with a 4 percent rate of growth that’s much better than anyone anticipated – and the first-quarter decline was revised to something less horrible, so investors worried about the economy are a bit less freaked out at this particular moment.
Of course, that still means that the economy only grew 0.9 percent in the first half of the year, and that’s not all that amazing, but the economy in the second quarter grew in areas that matter the most – business spending, consumer spending and to a lesser extent government, which was such a drag on GDP for a good long time that can’t be just ignored. In tandem with the GDP figure, the ADP report said 218,000 jobs were added for private payrolls for July, another strong month that portends a good showing out of the Labor Department figures on Friday. That’s all at a time when the housing indicators continue to weaken, which is still a concern, and some even believe that auto sales have probably hit their apex as well for this cycle, given so much of the buying was based on incentives, but we’ll get better clarity on that on Friday.
Red letter day for Argentina comes tomorrow, with the holdout investors and the South American nation coming down to the wire on a potential deal that would offer the holdouts something better than what everyone else agreed to in 2005 and 2010. Without getting into issues of vultures vs. violating debt agreements, the situation probably comes down to three scenarios.
First, Argentina defaults. One cannot underestimate this too much – Argentina has already defaulted before, and the stakes are nowhere near as high for the country as they were the first time. But it is still pretty darned damaging – it puts the country into another level of pariah with international capital markets (double secret probation, and here’s where we once again note that had John Vernon lived, he would have solved this whole mess), it causes even more capital flight from the country and worsens the outlook for the currency, which is already trading at a level much lousier than the going real rate.
One of the market’s more well known short bets, Herbalife, reports earnings after the close on Monday. The company is most notable as the target of activist investor Bill Ackman, who has had plenty of choice words for the company and yet has not been able to make good on his short position just yet, despite his fervent belief it is defrauding investors and taking advantage of poor people.
That’s a hefty set of accusations for anyone to deal with, but the stock’s 25 percent one-day surge last week just after Ackman’s presentation turned into a big loser for folks who were betting on big declines by the end of last week.
The day brings another run of earnings reports in what’s overall been a steady and admittedly staid earnings season – many of the high-fliers that investors counted on for volatile trading post-earnings haven’t delivered on that promise, an angle we’ll be exploring in more detail later in the day. Facebook went out with results that weren’t terrible or even all that amazing and shares meandered their way to a 2 percent gain in post-close trading Wednesday (it has since risen and is up 8 percent in premarket action Thursday, so that one has at least panned out for some). Shares of Gilead Sciences bucked the trend among more volatile biotechnology shares and really didn’t do all that much at all.
The big-cap stocks have been similarly unexciting, and the equity market gets a ton of them before and after on Thursday, including heavy equipment giant Caterpillar, the two car companies (Ford and General Motors). There’s also Post-It maker 3M, online retailer Amazon, payment processor Visa – another good consumer spending barometer, and the likes of PulteGroup and DR Horton, a pair of larger homebuilder stocks.
The next several hours will bring a handful of important consumer names that may give investors some idea of the progress the consumer economy is making. This only works as a barometer to some degree. Sales at S&P 500 companies far outpace the growth of the overall economy, which in part explains why the market itself is doing as well as it is (we’re in the 1980s now on the S&P, so crank up the Def Leppard) and the rest of the economy is lagging behind.
And mass market consumer-facing names like McDonald’s and Coca-Cola disappointed investors with their results on Tuesday, so it will be interesting to see whether others, like Whirlpool – which has tended to buck the general trend – will fare a bit better with their results. (Whirlpool, for its part, cut its outlook amid weak results, but North American sales were up 4 percent excluding currency effects, so score that one on the positive side of the ledger.)
Apple’s been the two-ton behemoth of the stock market for so long that it is going to be surprising, in a way, to see that the company isn’t really pulling its weight anymore when it comes to its percentage of S&P 500 earnings. This sort of thing can be a bit silly, but Howard Silverblatt, the index guru over at S&P Dow Jones, points out that Apple right now is about 3.2 percent of the total market value of the S&P while at the same time accounting for an expected 2.8 percent of earnings in the S&P – the first time since 2008 that Apple hasn’t delivered a percentage of S&P earnings equivalent to its market value.
In the past few years, Apple has tended to carry much of the S&P on its back, such as in the fourth quarter of 2011 and first quarter of 2012, when it accounted for 6 percent and 5.2 percent of the index’s earnings – compared with accounting for about 4.4 percent of the market’s value at that time. In the last quarter of 2012 the stock was 6.3 percent of the market’s earnings and was less than 4 percent of its market value.
NEW YORK, July 18 (Reuters) – Many investors say the best
trading strategy around a potential takeover of Time Warner Inc
by Twenty-First Century Fox is to wager that
media baron Rupert Murdoch will pay up to get what he wants. The
trick is that it may be too late to place the obvious bets.
Time Warner said on Wednesday it had rebuffed Twenty-First
Century Fox’s roughly $80 billion bid, or $85 per share, in
recent weeks over valuation and concerns that the Murdoch family
will have too much power. But people familiar with Twenty-First
Century Fox said Murdoch is determined to buy the rival media
July 16 (Reuters) – Foreigners bought more than $19 billion
in U.S. long-term securities in May, including Treasuries and
corporate bonds, after selling debt in April, the U.S. Treasury
Department said on Wednesday.
Including short-term debt and banking inflows overseas
investors purchased $35.5 billion of U.S. securities, of which
$22.4 billion was acquired by foreign official institutions.