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Nordstrom bucked the trend of lower sales in department stores. The retailer reported better-than-expected results, but the real standout was strong comparable store sales up 3.9 percent, better even than the strong 3.3 percent rate in the second quarter. The off-price and online businesses continue to grow.
Restaurant firm Cosi reported earnings below expectations, blaming the miss in part on higher food costs, particularly in poultry and dairy products. I have noted a long list of food suppliers and restaurants that have pointed to higher costs last quarter, including Pinnacle Foods, Dean Foods, El Pollo Loco, Sprouts Farmers Market, Wendy's, Sysco, Texas Roadhouse, Red Robin Gourmet Burgers, Papa John's, Noodles & Co., and Chipotle.
1) There are several IPOs today on the Nasdaq, including one that was postponed.
U.S. airline Virgin America priced 13.3 million shares at $23, toward the high end of the $21 to $24 talk. This is a well-known company with strong brand loyalty with a strong "cool factor." The company is known for comfortable seats, onboard WiFi, TV, and its loyalty program. The last airline that went public was Spirit in May 2011.
Valuation is at a discount: price to this year's earnings is 10.5 times earnings compared to peers at 13 times.
There have been plenty of biotech debuts this year, but Fibrogen, which overnight priced 8.1 million shares—more than expected—at $18 a share, toward the high end of the $16 to $19 range, would be the second largest biotech of the year. They provide oral therapy to solve anemia and fibrosis.
Finally, the first Chinese IPO since Alibaba has been postponed. EHi Car Services, the No. 1 car rental service company in China, was supposed to price its IPO overnight and ring the opening bell. In a filing, the company noted that there have been some allegations that it has misrepresented the size of its fleet.
2) Notice that the high yield ETFs all dropped yesterday, including the iShares iBoxx and SPDR Barclays High Yield. That's because a significant part of high yield is in shale plays. That's how they finance a good part of the drilling—with high yield debt.
Energy is the largest component of the high yield market, representing 16 percent of the market value, according to Deutsche Bank.
In a note, Deutsche Bank said that if oil dropped to $60 a barrel it would likely push 30 percent of the energy high yield sector into default.
"A shock of that magnitude could be sufficient to trigger a broader HY [high yield] market default cycle, if materialized," they said.
That's not clear, but one thing's for sure: This is one of the side-effects of lower oil prices. It will accelerate industry consolidation.
When oil prices go down this much, it means the pie is going to shrink and there is going to be a food fight for the smaller pie.
The oil service guys like Halliburton know the oil companies are going to drive a very tough deal when it comes to their 2015 budgets.
When you have two big oil service companies that come together they have a much better chance of being able to push back and become a more formidable company.
If you're an oil service guy looking at the possibility of low oil prices, with Baker Hughes down 10 percent this quarter alone, this is like a one-day sale in Macy's. Tomorrow the prices may not be this low.
Does it make sense? There are certainly synergies. It would give Halliburton more international exposure, but more importantly it would give Halliburton more product lines they could use for "integrated solutions."
That's a fancy word for cradle-to-grave help for oil companies. They can be involved in everything: Finding oil, drilling it, completing the well, reworking the well. Everything.
In synergies, you can get some magic numbers. They want 1 + 3 = 6. They want to capture more talent. Increase market share. Increase resources. Have a bigger global footprint. They just want to build a better team.
Also, when you combine two companies like this, you get economies of scale. Economies of scale in a low-price commodity environment makes sense because the low-cost service provider is going to be the one who survives any downturn, if one comes.
Whether this deal happens or not is only incidental. This is the first shot.
This will also happen to the oil patch. Let's speculate, for example, about ExxonMobil (XOM).
Does Exxon have a short list of companies it would love to acquire, for the right price? Sure it does.
What would an Exxon want? Look at it this way: The big question for Exxon is, what areas in our portfolio do we need to strengthen?
The likely answer is, what they need most of all is reserve replacement. More oil and gas. Exxon produces 2.1 million barrels of oil a day, and 10.6 billion cubic feet of gas per day. It can't find enough to replace all that.
Who would help them replace that? Somebody with a big presence offshore.
I know, it sounds ridiculous. These are two of the big giants. Exxon has a $400 billion market cap. BP has a $125 billion market cap. Royal Dutch has a $227 billion market cap.
But think about it. The ultimate goal for a company that wants to build an economy of scale is for #1 to buy #2 or #3 or #4. When you are #1, buying #20 doesn't get you much scale.
But if you buy one of your main competitors, you squish the competition for a long time. You have the biggest cost savings. You are way ahead of everyone.
Of course, that's why you have regulators. Tough to get through.
Regardless: Now it gets interesting.
Since the markets have pushed back into record territory at the very end of September, market volatility has dropped dramatically. For the last eight or so trading sessions, the S&P 500 has often been in a narrow 10-point trading range.
These flattish/slightly up days may not be exciting, but they are great news for the bulls. Think about it: When was the last time we were down one percent? Way back on October 13. If this is what passes for consolidation, this is pretty good.
This "green light for risk" comes with a number of caveats:
First: Traders seem willing to ignore weakness in Europe as long as ECB head Mario Draghi is strong--specifically, that Draghi will not be thwarted by Germans or others who do not want him to expand the stimulus program.
In other words, belief in the "Draghi put" is very much alive. If Draghi's influence is curtailed, markets in Europe and the U.S. are likely to react negatively.
Second: Three of the main issues that had traders concerned in October (Isis, Ebola and Ukraine), do not suddenly re-materialize as issues.
There's one other problem: Now that the market is at new highs, much of it is fairly priced or overbought.
That's why consolidation...moving sideways...is so important. It works off overbought indices, sectors, and stocks.
You do not want the stock market to go up one percent every day. That creates rapid pullbacks as traders quickly seek to consolidate profits on the first sign of weakness.
On the flip side, there's very few bargains out there. I've talked about gold and gold stocks (GDX) which are way oversold, but even here they are off their lows. A number of commodity plays are also oversold, including Freeport-McMoRan (FCX), just off a 52-week low.
What else? How about Twitter (TWTR), a miserable performer all year.
Finally, the most oversold sector is...volatility! The CBOE Volatility Index (VIX) has been pathetic recently, threatening to drop below 12 several times in the last few days.
U.S. stocks opened lower on negative sentiment in Europe. The Shanghai Composite, however, closed up 1 percent to a three-year-high. There is considerable discussion about the potential increase in trading activity among mainland Chinese stocks when the Shanghai-Hong Kong stock exchange link goes active on Monday, which I discussed in my Trader Talk on Tuesday.
The Hong Kong-Shanghai stock exchange link-up is one of the biggest developments in years for investors in international markets.
I told you this morning that beginning Monday, November 17, foreign investors will be able to directly buy individual shares of 560 Chinese mainland stocks. They will be able to do this because there will be a direct link between the Hong Kong Stock Exchange and the Shanghai Stock Exchange.
Bottom line: Anyone who opens a brokerage account with a firm in Hong Kong will be able to own a vast swath of mainland Chinese shares.
U.S. investors have already been able to buy some of the mainland shares through ETFs like the Market Vectors China ETF (PEK) and the Deutsche X-trackers (ASHR), but these are baskets of stocks pegged to indexes, not individual shares. Until now.
Why do we care about this? Because prior to today, the Chinese stocks that were available to U.S. investors—those that listed in Hong Kong, or those that dual-listed in the U.S. and China—were mostly big, state-owned enterprises. Mostly big banks and commodity companies.
Another day, another new high. Ebola, Ukraine, ISIS—nothing has killed this rally. It's the 39th time this year the S&P 500 has closed at a new high.
We also have record earnings, near-record profit margins—9.7 percent for the S&P 500, well above the 10-year average of 8.5 percent—and declining unemployment.
Several beaten-up sectors have rebounded nicely. Housing stocks in particular have been on a tear recently The SPDR Homebuilders ETF is above its highs in the late summer and not far from an historic high.
China stocks rallied, with the Hang Seng up 0.8 percent and the Shanghai Composite up 2.3 percent overnight. After years of discussion, the Hong Kong Stock Exchange and Shanghai will finally open a formal stock trading link on Nov. 17.
Many mainland China firms already dual list in Hong Kong, mainly large state-owned enterprises, but this trading link will open up many more smaller companies.
Hong Kong investors will be able to buy and sell an additional 568 Shanghai-listed equities. Mainland investors will be able to buy and sell 268 Hong Kong-listed stocks. This opens up many domestic Chinese stocks for the first time.
Some fund managers were already allowed to invest in Chinese stocks through a quota system that was capped at $105 billion. But the new system will allow most investors to buy shares on the Shanghai Stock Exchange, opening up the $2 trillion market fully to foreign investment, though there will be some quotas on inflows into China that will still be applied.
Too many people think the stock market moves only on the Fed, but we have:
And this with a government that can't get anything done!
As for the markets at new highs, that's good news, but there are signs that we have moved from bargains to "Not much is cheap" really fast. Like, in less than a month.
What's cheap? Not much. Gold miners are absurdly oversold. They bounced yesterday, and that's a good sign.
But much of the rest of the market has bounced back, in some cases dramatically.
It's downright pathetic. IBM has gone from a monster after the Financial Crisis (it doubled in a couple years) to a loser, down 14 percent this year. True, it hasn't done much in the last two years, but it has simply collapsed since it's disappointing earnings report a few weeks ago.
It dropped from $180 to $169.10 the day of its earnings (October 20th), but then continued to drop for the next two days.
It rose modestly over the following days, but this morning, it drifted lower again, to an intraday low of $160.05, a three year low.
I don't like spending a lot of time on technicals, but more than one trader has noted that when a stock drops big on bad earnings--and then follows that up by making ANOTHER "lower-low" after a "dead-cat bounce"—that is a sign that investors are throwing in the towel.
It's often said that IBM's problem is that it is so big it is difficult to grow. But that's only part of the problem.
Dow Industrials and Transports and the S&P 500 reached new highs Thursday. U.S. stock futures popped ahead of the bell as weekly jobless claims came in lower than expected, suggesting we could have upside to Friday's non-farm payroll report.
Dovish comments from European Central Bank head Mario Draghi also helped.
The euro dropped like a rock and European equities moved up, as Draghi said ECB officials were unanimous in their position that they would use more stimulus if conditions on the continent call for it. Draghi said the ECB is committed to expanding its balance sheet and to continuing to use unconventional methods.
The question is how "unconventional" Draghi is willing to be. What's in his bag of tricks that will not cause blow back from the Germans?
Rohit Bansal and Jason Gross had been friends for years, both having worked at the N.Y. Fed. Now both are out of jobs.
Humbled bond manager Bill Gross just got a vote of confidence from one of the most successful investors of all time.
The bank is in talks with buyers about selling its embattled metal warehousing business.