CNBC's Domm: Today's Agenda in the Markets (update)
Stocks are finding their feet on higher ground this morning as a positive tone embraces equities markets worldwide. Oil continues to back down from the new high struck earlier this week.
Putting aside the rumors of big wipeouts and imminent blowups, there will be some real losses for the hedge fund industry for July but, like the stock market, the industry averages are still up for the year.
CNBC's Steve Liesman will share with us the hedge-fund industry's report card for July today. He finds that macro index funds are down 3.13% for July, but still up 0.43% for the year. The merger arbitrage funds are down 2.14% in July, but still up 3.64% since January. Equity-market-neutral funds are down 0.42% for the month and up 6.21% for the year, while global index funds are down 0.93% for the month and up 5.40% for the year, according to Hedge Fund Research.
"The process of finding out where the bodies are buried continues," said Liesman. "Everybody's down for the month, but they're still up for the year."
The Wall Street Journal says among the losers is Tudor Investment Corp.'s Raptor Fund, a $9 billion fund, down 9% for the month and now down 3% for 2007. The Tudor BVI fund, run by Paul Tudor Jones, lost 3% for the month but is still up 4.6% for the year.
Nose Bleed Maneuvers
When we thought yesterday was going to be rocky, we didn't realize the behavior of the stock market would be more like a rocket. That's how stocks acted in the final half hour of trading after a day of back-and-forth mood swings. A late updraft pushed the Dow to a 150 point gain in a matter of minutes. The Dow finished at 13,362, up 1.1%. The Nasdaq rose 7 to 2553, and S&P 500 was up 10 at 1465.
The Russell 2000 closed up 1.79 points, after a swing that took it down 10. "That's a two percent swing in the Russell. That's very unusual volatility," said CNBC's Bob Pisani.
Unusual is Right!
Leave it to Birinyi Associates to have the factoids that tell us how often this type of wild upswing happens. In a late afternoon note, Birinyi said yesterday's final half hour Dow move of 1.29% was the eighth greatest such surge since 1990, and the strongest since the start of the current bull market in October, 2002.
Pisani said that late day vault higher came after traders took a look at the Market on Close orders which come out at 3:40 pm every day. The orders are reported to let market players know what kind of orders are around and to alert them to possible imbalances. The orders are revised again at 3:50 pm New York time. When yesterday's data came up benign, meaning an even mix of buys and sells, buyers swarmed in.
"On a normal day, none of that matters. In the last five or six days everybody watches it," said Pisani. "The problem with this is its not predictive. It works until it doesn't work."
All day yesterday, the market was ripe with all kinds of rumors. The home builders were plagued by rumors about trouble at Beazer, which the company denied, only after its stock cratered. The taint of sub prime hung over the market, periodically bringing rumors to the surface about more bad credit.
But then there was that big snap up.
"You're dealing with this one day at a time. These corrections are like that," said CNBC's Larry Kudlow.
Bonds vs. Stocks
The yield on 10-year Treasuries stands at about 4.79% this morning. Treasuries went for a wild ride in the wee hours of Wednesday, with the 10 year touching 4.70%. Yields were higher in time for morning trading in New York yesterday but the move was significant for Treasuries, says CNBC's Rick Santelli. He said the flight to quality trade in Treasuries is beginning to wear down. Some investors were also selling Treasuries to take profit to make margin calls, he said.
"Investors will get more comfortable with the new found volatility, and that process will slowly whittle down some of the allure of Treasuries," he said.
The emotion of U.S. credit worries is a global issue and is cropping up in portfolios overseas. The Financial Times reports the German government stepped in to rescue IKB, a specialist lender which revealed one of its funds was hit by problems coming from subprime U.S. mortgages.
"The global market story is an import, export issue. We imported global growth and we exported bad credit," Santelli says.
Made in China
Mattel Toys is the latest company to find fault with products made in China. The company's Fisher-Price unit will recall 967,000 toys that contain hazardous levels of lead paint.
Made in America
The tragic collapse of the Interstate 35W bridge in Minneapolis raises issues for the shipment of grain, iron ore and other commodities that must cross the Mississippi River. CNBC's Phil Lebeau will report on the impact of the loss of this critical transportation route today.
Nokia stock is jumping this morning after the company said second-quarter net more than doubled, beating analysts' expectations. The world's largest mobile phone maker said net rose to $3.87 billion and sales climbed 28%. Viacom reported a better than expected profit of $434 million, off from $437 million last year, but revenue rose 13%. Disney reported higher earnings after the bell yesterday of $1.18 billion, compared to $1.13 billion the year earlier. It beat analysts' expectations of $0.55 per share by two cents.
CNBC's Scott Wapner keeps reminding us that the technology companies have hit the numbers this quarter and like Nokia, they've been strong.
"The outlook for tech is, for the most part, favorable. There's a genuine feeling out there that the worst is behind technology, and earnings appear to be backing that up. Most surveys from both inside the industry and out have been positive on chips. After all, they run so many of the devices we rely on," said Wapner from the Nasdaq market site.
He says an interesting chart comparison to watch is the semiconductor index vs. the Nasdaq index. "The chips and Nasdaq have traded in tandem for the past week. It's surprised even some longtime market watchers. Bottom line, if you want to see where the tech-heavy Nasdaq is going to go, watch the chips," said Wapner.
CNBC correspondent Margaret Brennan has been taking a look at stocks in the retail sector and finds a big pick up in short interest. "I think short interest is growing majorly now for two reasons. One, the market is betting consumers will slow their spending at mid to low end retailers during this already light summer shopping season, and secondly traders are shorting some of the retailers rumored to be takeout targets on news of the tightening credit markets," she said.
Brennan says short interest in widely rumored takeover target Macy's is at 2.7% and specialty retailer theGapwhich was rumored to be a private equity target, is at 17.6 million shares or 2.2% short interest. Short interest at Wal-Mart is at 36 million or 0.9% of outstanding shares, Targetis at 22.6 million or 2.7%. Short sellers are even betting against those retailers expected to get a boost from back to school sales like Kohl's (3%) and Best Buy (9.7%), she says. (corrects earlier version that inaccurately described number of shares as percent of shares)
By the Numbers
One of our favorite number crunchers is Pisani's producer Robert Hum. Here is his report on how sectors have fared since stocks hit highs July 19, just weeks ago. If it feels to you like the stock market has fallen down a flight of stairs, bumping loudly on each step, check out these stats and you'll see why.
Since the Dow & S&P's closing high on 7/19/07
Major U.S Indices
Dow Industrials -4.56%
S&P 500 -5.62%
Dow Utilities -6.01%
Nasdaq Composite -6.11%
Dow Transports -7.35%
Russell 2000 -8.68%
S&P 500 Sectors
Cons. Staples -2.94%
Cons. Discretionary -7.40%
Other Major Sector Indices
Oil Services -4.48%
Natural Gas Stocks -7.37%
Gold Stocks -8.77%
Oil Stocks -9.08%