Stocks market stages unexpected reaction after November Jobs Report comes in stronger than expected at 203,000.» Read More
Is the retail investor really back? The Wall Street Journal ran a front-page story this morning noting that the retail investor has returned to stocks.
While much of the story was based on anecdotal observations, there is certainly more money going into stock mutual funds this year. I'm just not sure it is the tidal wave everyone has been waiting for.
October non-farm payrolls soared by 204,000, well above estimates of 120,000, with upward revisions in September (to 163,000 from 148,000), and August revised upward as well. Private payroll growth was 212,000, the strongest since February.
S&P futures dropped 10 points, the 10-year Treasury yield went from 2.6% to 2.7%, the dollar index rallied to a near two-month high, and gold dropped from $1,307 to $1,292.
Huh? Wasn't the government shutdown was supposed to turn this into an irrelevant, disposable number?
Twitter has finally priced. Everyone is worried about a technology glitch, but I have slightly different concerns.
I'm anticipating that the stock will open for trading some time between 10 and 10:30 AM ET. That's assuming a relatively tame opening pricing, say, around $30.
My concern is that this could be a moonshot open. Like, at $40 or higher. If that is the case, it could take longer to open.
Should you invest in IPOs as a separate asset class? I'm getting these kinds of questions in the wake of the Twitter excitement. The answer is...maybe. It depends on what kind of investor you are.
First, you should know the basic rules of IPO investing. Here are mine:
Here is what's happening now: social media, biotech/oncology, cloud computing, and internet security.
There are occasional outlier investment classes. One recent example is the success of a small group of specialty retail IPOs. Examples: Restoration Hardware (RH), Five Below (FIVE) and now, last week, the successful IPO of The Container Store (TCS).
But this is a small group. Stick with the big trends. Why? Because that's where the money is! If the money's not flowing in, who's going to carry you down the river?
So, is this the right time to invest in IPOs? Your view on where you think the market will be going over the next year is your primary guide. For the moment, there are some signs that the IPO market is looking toppy.
Here is what I see:
First, the main mutual fund that everyone watches, Renaissance Capital's IPO Aftermarket Fund (IPOSX), is up over 40 percent this year, handily outperforming the S&P 500's 24 percent gain, but it topped out almost a month ago.
Second, there's an ETF for IPOs. The very same Renaissance Capital has introduced the Renaissance Capital IPO (IPO) three days ago. This ETF holds most of the larger IPOs in the last two years; Twitter will go into it next Thursday. They will be the first ETF to own the stock. But the mere fact that there is now an ETF for this asset class--which means it is very easy to own--is an indication that interest is high in the IPO space.
Third, this is the biggest week for IPOs since at least 2007. 16 IPOs are pricing worth nearly $4 billion. Why go public this week? Blame the underwriters: You get the stuff out the door when you can. Markets are up. Let's get this stuff out the door!
Last, the IPO market has become choppy as IPO observers will readily tell you. Five of the six IPOs that began trading today are trading below their IPO price. This is likely partly due to the fact that Twitter is sucking the oxygen out of the IPO room, but still.
I'm not saying "market top," but you get what I mean.
Twitter's impending initial public offering (IPO), which prices tonight, is sucking the air out of a crowded IPO room. I told you on Tuesday that this was the biggest week for IPOs since 2006, with 16 pricing this week. Their total value? A whopping $4 billion.
Of that, $1.7 billion is from Twitter, and judging by what happened overnight, Twitter is drowning out its challengers on the primary market. Several companies priced at the low end of the range last night and one--Latin American airline Avianca (AVH) pricing below. Another couldn't even price at all.
Jeff Sprecher, the CEO of Interncontinental Exchange (ICE), made a number of interesting remarks this morning on his conference call that followed the release of the company's third-quarter earnings.
Jeff noted that the ICE/NYSE merger will likely close in a matter of days, but more important were his remarks on the state of the market.
It started off innocuously enough. An analyst asked Jeff if he felt that he was responsible for being a champion of the New York Stock Exchange, now that he was about to become CEO of the combined companies.
He started out by noting that current NYSE CEO Duncan Niederauer would remain on the team for the next year (very good news), but then took a bit of a left turn.
He began talking about market structure. And he made it clear he is not happy with what he sees. Here's what he said:
"... a lot of the market model of what you are talking about is a market model that takes advantage of the fact that those people [retail traders] on that day have to sell. And that means that they can be charged usury rates and that means that they can have poorer information than people that they trade against when they put a market order in. And in the infrastructure of trading today is intermediaries who people are turning to and exchanges that people are turning to hoping that they will have a duty of care, but in reality those people are incented to take advantage of the people that are the weakest on the day they have to the trade.
And I think that that is fundamentally wrong. I think people that have built a business around that are destined to ultimately fail. I don't think they are sustainable. And increasingly when I go talk to friends and when I listen to people that are not involved specifically in what we do, there is a sense that things aren't fair,and that is the collective wisdom increasingly of the market. We're starting to finally see people ultimately talk about market structure changes and fundamentally revisiting why it is that we have equity exchanges. And I think we have equity exchanges so that companies like ICE that can start from nothing can attach to the capital markets to raise capital to build businesses, create jobs and be innovative and helpful to society.
I think the secondary market that takes advantage of people that have to trade or have poorer information is not particularly warranted or helpful or sustainable. And so, I'm anxious to be involved in the U.S. cash equities business from the sense that I think the New York Stock Exchange is incredibly well-positioned. I think the market model is going to change, I think people in the business want it to change, and hopefully by being transparent about it, we will be a positive force in causing it to change."
These are interesting—indeed, laudable—comments, but there's a problem here. Much of the business model of the NYSE is built around catering to high-frequency traders, from colocation facilities to proprietary data feeds. Many institutional traders—which are trading on behalf of retail clients—do not want to send order flow to the NYSE floor precisely because they are afraid of being picked off by these high frequency traders.
A second problem is how exchanges make money. All of them use a maker/taker model, where exchanges pay traders to provide liquidity, and charge them to take it. This means it can cost money to trade at the NYSE. They can trade cheaper in alternative facilities, like dark pools.
So, the business model depends on having large numbers of high frequency traders, and on the maker/taker model. What would happen if the NYSE (or any other exchange) abandoned the maker/taker model?
There's a very good chance that high-frequency traders would go elsewhere to trade where they can get paid.
Would the NYSE be willing to lose market share to gain back retail investor flow? How much would they be willing to lose? Could they make it up by attracting new order flow from retail clients?
Possibly, but as everyone knows, most retail order flow is already locked up. The order flow from almost all discount brokerage firms like ETrade or Scottrade or Charles Schwab is sold to a small group of firms (Knight, Citadel, UBS) who "internalize" the trades by matching off orders to buy and sell from their own internal order flow. Only rarely do any of these orders make it to the NYSE floor.
And what if you put an order through your broker to buy or sell a stock or a mutual fund? Chances are your broker will first route it to a dark pool, for the same reasons cited above.
Regardless, we need someone to at least speak up and ask these kinds of questions. There may be better ways to do things.
Let's hope Mr. Sprecher has started a dialogue others will pick up.
Speaking of market share, the NYSE's share of overall volume is continuing to slip. According to Sandler O'Neill, the NYSE accounted for 21.7 of total stock market volume in October, several percentage points below that of just a couple years ago.
Exchange share of volume during October:
Now look at the numbers from December 2011:
There are three important trends to note. First, NYSE share of total volume has slipped from 25.5 percent to 21.7 percent in just under two years. Second, dark pools are continuing to gain market share, now 37.3 percent of volume, from 32 percent. Third, the combined volume share of Direct Edge and BATS, the two small exchanges that compete against the NYSE and NASDAQ, is now 20.5 percent, almost equal to the volume share of the NYSE. This is important because Direct Edge and BATS have announced that they are merging in a deal that will likely close in the first half of 2014.
Bottom line: There is a new competitor in town.
The busiest week for initial public offerings (IPO) in years is kicking off. I know everyone is obsessed with Twitter, but it is only the most well-known of dozens of names that will be going public in the next two weeks.
There are 16 IPOs set to price this week...that's the most for any week since 2006, according to Renaissance Capital. And there's also 15 secondaries also scheduled for this week, that number will certainly grow.
Next week will be busy as well: already nine scheduled to go public.
Buying at the top for initial public offerings (IPOs)?
Amid all the excitement around the Twitter IPO and the strong IPO market this year, it's interesting to note that the Renaissance Capital IPO ETF (IPO), which started trading in mid-October at $20.05, is basically flat at $20.16 after a few weeks of trading.
Interest rates are up again today; they began moving up after Philly Fed President Charles Plosser came on our air with a few hawkish comments, arguing he wanted a cap on the balance sheet of the Federal Reserve.
Yields on the 10-year Treasury have gone from 2.48 percent on Wednesday before the FOMC announcement to 2.58 percent today. Bullard also said that the likelihood of a taper will rise as the economy improves.
The fact that the Federal Reserve did not appear to completely rule out tapering in December has been weighing on stocks since the announcement of no tapering yesterday. Sentiment is very much against the October rally (the S&P 500 is up 4.8 percent, its best month since July), which of course is the biggest asset for bulls.
It's fashionable to declare that stocks are "overbought" (technically true), but proclaiming they are "tired" or "floundering" has now become a cliche, about as useful as griping out the low volume, a complaint that is now two years old.
The unofficial odds are rising that the Fed will announce taper plans at its December meeting.
Three Wall Street trade groups sued the Commodities Futures Trading Commission to stop tough overseas trading guidelines they fear.
Paid in the form of assistance programs, the funds are in effect a subsidy to the banking industry, The Washington Post reported.