Forgetting the traditional market news, as we began last week both the NASDAQ and Russell 2000 were at critical support. A rally Monday showed those support levels held, giving bulls breathing room. We’ll discuss this more below after we get through the more fundamental news items that transpired. Traders seemed to breath easier on Monday seeing no escalation with North Korea and came in ready for a bit of a relief rally.
The lack of a nuclear test from North Korea over the weekend did much to reverse defensive positions adopted by traders heading into the weekend, said Ian Winer, director of equity trading at Wedbush Securities.
It was a very heavy week of S&P 500 type earnings with banks leading the way in the first half of the week. Then a series of large sized companies across the spectrum.
The tax cuts are coming! The tax cuts are coming! Thursday saw another rally as the “Trump tax relief” was hinted at – yet again. The market has seemingly rallied on this “prospect” countless times since November.
Mnuchin, speaking at an Institute of International Finance conference, said a Trump tax bill is likely to be unveiled in the near future, alleviating fears that the tax cuts promised by the president may have been put on the back burner after the Republicans failed to vote on the American Health Care Act last month. “[His] comments today were icing on the cake and are giving investors confidence that the long term economic backdrop will be getting better,” said Karyn Cavanaugh, senior market strategist at Voya Financial.
Then Friday, Trump himself chimed in to the Associated Press.
In an interview with The Associated Press, Trump says the plan will result in tax cuts for both individuals and businesses. He would not provide details of the plan, saying only that the tax cuts will be “bigger I believe than any tax cut ever.” The president says the package will be released on “Wednesday or shortly thereafter” — just before his 100 day mark in office.
As we noted last week in our recap, it would be a quiet week on the economic news front and nothing of note to report here.
Goodness gracious, the European Central Bank and Bank of Japan have bought over 1 TRILLION worth of assets year to date – and are on a pace to suck up nearly 4 TRILLION by end of year. Geez Louise. (yes I put that in red font!)
Hartnett and company argue that this continuing “liquidity supernova” remains the “best explanation” why global stocks and bonds are “both annualizing double-digit gains [year to date] despite Trump, Le Pen, China, macro…”
No 5 day weekly “intraday” chart of the S&P 500 via Jill Mislinksi this week!
Scary stat of the week: Netflix has fewer than 100M subscribers, and says it has streamed 500M+ hours of Adam Sandler movies since it started launching new Sandler flicks under a big-money deal with the former SNL star. That means each Netflix subscriber has averaged more than 5 hours of Adam Sandler movies.
Scarier stat of the week: This guy has had a rough year – losing $89M thus far in 2017 buying VIX calls. Or as Blain likes to call it… “walking around money”.
The mystery trader’s investment vehicle of choice is the CBOE Volatility Index, or VIX, a measure of expected price swings in US equities that serves as a barometer for investor nervousness. It generally climbs as stocks fall, so purchases of VIX contracts translate to bearish wagers on the S&P 500. “50 Cent” (as he has been nicknamed) has gradually amassed holdings of about 1 million VIX calls through three occasions so far in 2017, and each time a significant portion of the premium paid has expired worthless. The most recent example came on Wednesday, when 725,000 of 50 Cent’s contracts expired without making any money, MRA data shows. Perhaps the fourth time is the charm. So what has been the damage to 50 Cent’s bottom line? It’s not pretty. Out of the $109 million the trader has spent this year buying the VIX, $89 million has expired worthless.
It’s come to this: When a bomb went off near a famous German soccer team’s bus, most thought terrorism. In a plot twist, it was a short seller of the club’s stock. You can’t make this stuff up.
In a surprising twist, German prosecutors say the Borussia Dortmund bus bomber wasn’t an Islamic terrorist — he was a trader trying to make a quick euro betting shares of the soccer team would fall. A 28-year-old suspect, identified as Sergej W., bought 15,000 put options in Frankfurt-listed Borussia Dortmund on April 11, the day of the blast, investigators said in a statement Friday. Eight days earlier, he took out a consumer loan, they noted. North Rhine-Westphalia Interior Minister Ralf Jaeger, the top security official in the state, said the suspect invested €79,000 ($85,000) in the stock options, which would have meant a profit of more than 1 million euros if the share prices had sunk
The week ahead…
As we go to press, the French election is complete with “the nationalist” set to go up against “the globalist” – so another referendum to mirror Brexit and Trump on May 7th!
Polls cited by French television Sunday indicate centrist candidate Emmanuel Macron and far-right National Front leader Marine Le Pen will face each other in a May 7 runoff. Out of an 11-candidate field, Macron was seen with 23.4% of the vote, with Le Pen at 22.4% according to an official tally with 85% of ballots counted.
Staying political…. some hot potato about a government shutdown will fill a good amount of hours on CNBC.
Almost 200 companies are slated to release earnings next week including Dow components Caterpillar and Boeing, and tech giants Microsoft, Alphabet, and Intel.
Not too much of interest in economic news but the first pass at first quarter GDP will be released, with expectations of sizzling 1% growth.
Short term: Some bifurcation in the 2 major indexes as we have some weakness in the S&P 500 – which broke support about a week and a half back, and now that support line has turned into a resistance. The NASDAQ is looking stronger; it held that key 5800 level we’ve had marked on the charts for a while now.
Just like the NASDAQ, the Russell 2000 entered last week on the razor’s edge of support at 1340. And like the NASDAQ it bounced. Bulls win (again).
The NYSE McClellan Oscillator is often a great indicator but a few weeks of the year it just flip flops on us so often we have to sideline it. This is one of those times.
Long term: Here are 5 year charts on the major indexes; we are a broken record here but it would take a very severe selloff to change prospects here.
Charts of interest:
Lottery pick of the day (Monday) OncoMed Pharmaceuticals (OMED) said that its small-cell lung cancer drug had missed its primary and secondary endpoints in a mid-stage clinical trial. Shares sank to close down 17%.
Well well well, what do we have here – a brick & mortar retailer showing signs of life. GNC (GNC) shot up some 30% Tuesday after beating first quarter expectations. The funny thing is most of these metrics are actually pretty sad (net income down 50%+ year over year, revenue fell, same store sales shrunk) but they *ARE* “better than expected”. Hence the pop.
Net income came in at $23.9 million, or 35 cents per share during the quarter, compared with $50.8 million, or 69 cents per share during the same quarter last year. Adjusted earnings were 37 cents per share, which was above the consensus for 34 cents. Revenue hit $644.8 million during the quarter, a drop off from last year’s $668.9 million during the same quarter, but better than the $623.0 million consensus. GNC same store sales decreased 3.9% during the quarter.
Goldman Sachs (GS) weighed on the market Tuesday as it’s trading operation didn’t seem to navigate the first quarter well – while not a massive mover it is a Dow component with a high price point and the DJIA is the one index where stocks are weighed by stock price, rather than market cap, so it had a sagging effect on that index mid week.
Same for IBM (IBM) when it posted weaker-than-expected quarterly sales late Tuesday. Both stocks had their worst days since June 2016.
Steel stocks rallied Thursday on President Trump’s announcement of a government probe into whether foreign steel imports are harming national security.
Friday, Mattel (MAT) dropped nearly 14% after the toy maker’s quarterly results out late Thursday fell short of Wall Street estimates.
Have a great week and we’ll see you back here Sunday!