David's Feed
May 15, 2014
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MORNING BID: Mo-Mo and the Hedge Fund Reckoning

Who had the mo-mo mojo and who was crushed by the steamroller becomes evident late in the day Thursday when filings from major hedge fund managers – those things known as 13-Fs – are released.

Hedge funds were hit hard by the decline in the likes of Twitter, Tesla, Netflix and a lot of other names that long/short investors had favored throughout 2013 and early 2014, but their substantial decline cut the legs out of a lot of leveraged managers looking to continue to profit on the big run-up in that sector.

May 14, 2014
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MORNING BID – There’s A Sale at Penney’s!

We come not to bury J.C. Penney, because everyone else has done that a few times over already.

Headed into the last gasps of earnings season, overall earnings growth for the quarter is currently 5.5 percent – much better than the 2 percent expected at the outset of reporting season and trending back in the direction of what had been expected Jan. 1 before, well, before anybody knew anything at all.

May 13, 2014
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MORNING BID – Inflation isn’t as benign as it seems…

The monthly inflation indicators have been forgotten men in recent years, notable only when investors engaged in their brief freak-outs about deflation that accompany weak economies from time to time. This week’s release of wholesale and retail inflation figures is getting a bit more attention as the Federal Reserve closes in on the day when it will no longer be buying bonds on a monthly basis and turns its attention to interest-rate increases.

The 10-year note’s yield has hovered around 2.65 percent in recent weeks, and the rapid removal of stimulus suggests markets are pretty unclear when it comes to the inflation outlook, in that, well, they don’t see much. The Fed doesn’t see it either – they talk about how they expect price normalization, probably hoping that at some point during Janet Yellen’s tenure that the past experience of rising prices in a late-cycle economy comes to pass here as well. Yet it hasn’t happened — and so the Fed revises its inflation forecasts lower, always sure to maintain some consensus estimate in the far-off future of that coveted 2 percent inflation level.

Apr 29, 2014
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MORNING BID – The small and the long

Stability is the name of the game right now in equity markets – something that can be seen in the daily moves in various speculative sectors and how investors react to outside influences like Russia and Ukraine (really, the primary factor motivating the more wild ups and downs in the stock market at this point). Signs that the tensions may be thawing – and we’ve seen this movie before – contributed to a rebound in the Nasdaq and other indexes later in the day to leave the tech-heavy index basically unchanged on the session.

But that didn’t help the biotech stocks, and the cloud names like Workday and Salesforce.com (now riding a four-day losing streak), and the sharp declines in these names is something that the folks at Bespoke Investment Group suggest is a phenomena that newer investors haven’t seen before. That is, when stocks just keep falling, and it shows that the break in momentum in these names hasn’t been arrested. “It’s rare for a market to become that information-insensitive (in either direction), so this has been a great learning opportunity for traders that haven’t seen a similar sort of move,” they wrote. It also gives lie to the idea that this was a tax-related selling issue. While those stocks have tended to pop up with the market – and this morning’s jump in futures shows that investors really do have Ukraine close at hand even if the effect is a third-order one – but any jump in the Nasdaq has been a selling opportunity for those names.

Apr 29, 2014
via Counterparties

MORNING BID – The small and the long

Stability is the name of the game right now in equity markets – something that can be seen in the daily moves in various speculative sectors and how investors react to outside influences like Russia and Ukraine (really, the primary factor motivating the more wild ups and downs in the stock market at this point). Signs that the tensions may be thawing – and we’ve seen this movie before – contributed to a rebound in the Nasdaq and other indexes later in the day to leave the tech-heavy index basically unchanged on the session.

But that didn’t help the biotech stocks, and the cloud names like Workday and Salesforce.com (now riding a four-day losing streak), and the sharp declines in these names is something that the folks at Bespoke Investment Group suggest is a phenomena that newer investors haven’t seen before. That is, when stocks just keep falling, and it shows that the break in momentum in these names hasn’t been arrested. “It’s rare for a market to become that information-insensitive (in either direction), so this has been a great learning opportunity for traders that haven’t seen a similar sort of move,” they wrote. It also gives lie to the idea that this was a tax-related selling issue. While those stocks have tended to pop up with the market – and this morning’s jump in futures shows that investors really do have Ukraine close at hand even if the effect is a third-order one – but any jump in the Nasdaq has been a selling opportunity for those names.

Apr 28, 2014
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MORNING BID – Bonds in the Post-Renaissance

Consensus could not have been more wrong when it came to the bond market in 2014. With nearly four months gone, the iShares 20-year+ Treasuries ETF has been kicking everyone’s butt, with its year-to-date return up at 10 percent and the stock market remains pretty much flat so far on the year. While it’s natural that the stock market is taking a breather after the 2013 rally, the bond market’s move in the long end has been surprising to many, but there’s some decent evidence suggesting that it’s not going to end, not yet, anyway. The 30-year note fell to a yield of 3.42 percent on Friday, lowest in 11 months, surprising at a time when the expectation is for higher rates.

Long-dated bonds have been a favored asset throughout the year for a number of reasons, be they macro, market related or pension-liability related (more on that later). Overall expectations for higher rates haven’t been entirely incorrect – the short-dated part of the curve and the “belly” (five and seven year maturities) are certainly selling off on the year, as the Federal Reserve winds down its monthly bond-buying stimulus and edges ever closer to the time when it will begin to raise interest rates. That’s produced a bit of a weird dynamic here; instead of seeing an additional steepening in the curve as rates rise across the board, the longer-dated rates have been held down by less-than-stellar outlooks on economic data, liability-driven pension buys, and the concern that inflation just isn’t going to make quite the comeback that anyone, including the Fed, is hoping for (and yes, the Fed wants more inflation, and hasn’t been able to get it).

Apr 28, 2014
via Counterparties

MORNING BID – Bonds in the Post-Renaissance

Consensus could not have been more wrong when it came to the bond market in 2014. With nearly four months gone, the iShares 20-year+ Treasuries ETF has been kicking everyone’s butt, with its year-to-date return up at 10 percent and the stock market remains pretty much flat so far on the year. While it’s natural that the stock market is taking a breather after the 2013 rally, the bond market’s move in the long end has been surprising to many, but there’s some decent evidence suggesting that it’s not going to end, not yet, anyway. The 30-year note fell to a yield of 3.42 percent on Friday, lowest in 11 months, surprising at a time when the expectation is for higher rates.

Long-dated bonds have been a favored asset throughout the year for a number of reasons, be they macro, market related or pension-liability related (more on that later). Overall expectations for higher rates haven’t been entirely incorrect – the short-dated part of the curve and the “belly” (five and seven year maturities) are certainly selling off on the year, as the Federal Reserve winds down its monthly bond-buying stimulus and edges ever closer to the time when it will begin to raise interest rates. That’s produced a bit of a weird dynamic here; instead of seeing an additional steepening in the curve as rates rise across the board, the longer-dated rates have been held down by less-than-stellar outlooks on economic data, liability-driven pension buys, and the concern that inflation just isn’t going to make quite the comeback that anyone, including the Fed, is hoping for (and yes, the Fed wants more inflation, and hasn’t been able to get it).

Apr 25, 2014
via Counterparties

MORNING BID – Stability, earnings, and Russia

The S&P 500 heads into the last session of the week less than 1 percent from an all-time closing high, corporate credit spreads have generally continued to shrink or at least stay stable, and overall investors remain enamored of riskier assets even though the momentum crowd has had its head handed to it for the better part of two months now.

Volatility is low overall, and while earnings estimates are coming down for the second quarter, they’re doing so at a pretty slow pace – with the second quarter expected to come in at 8.1 percent from 8.4 percent estimated on April 1. That’s pretty tolerable, though of course we’ve still got more than half of the earnings season left to get through.

Apr 25, 2014
via Counterparties

MORNING BID – Stability, earnings, and Russia

The S&P 500 heads into the last session of the week less than 1 percent from an all-time closing high, corporate credit spreads have generally continued to shrink or at least stay stable, and overall investors remain enamored of riskier assets even though the momentum crowd has had its head handed to it for the better part of two months now.

Volatility is low overall, and while earnings estimates are coming down for the second quarter, they’re doing so at a pretty slow pace – with the second quarter expected to come in at 8.1 percent from 8.4 percent estimated on April 1. That’s pretty tolerable, though of course we’ve still got more than half of the earnings season left to get through.

Apr 24, 2014
via Counterparties

MORNING BID – Microsoft, up from the ashes

Microsoft heads into tonight’s earnings report coming in on a high, having recently breached the $40 threshold for the first time in forever (it’s all Frozen references this week, folks). The company pushed past $40 a share in early April for the first time in nearly 14 years, and spent most of that time ensconced in a tight range between about $22 and $35 a share, depending on what the overall market was doing. It tanked in 2008 with everything else, and then spent the 2010-2012 period putting together a cumulative 13 percent price loss in the midst of a raging bull market, if evidence of its sad-sack status couldn’t be more apparent.

This year, though, the company’s been the beneficiary (along with the other “horsemen,” Cisco, Intel and Oracle) of a shift away from overvalued momentum-driven stocks towards cyclical technology stories. These are the types of companies that produce steady revenues even if they’re not doing anything but collecting on consistent upgrades of stuff that everybody needs and doesn’t really like. And really, the company had a stranglehold over PC operating systems that it defended aggressively, let’s not kid ourselves.

    • About David

      "David Gaffen oversees the stocks team, having joined Reuters in May 2009. He spent four years at the Wall Street Journal, where he was the original writer of the web site's MarketBeat blog. He has appeared on Fox Business, CNN International, NPR, and assorted other media and is the author of the forthcoming book "Never Buy Another Stock Again.""
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