Halftime: Bulls Find Friend in President Obama?
It looks like bulls found a friend in Barack Obama. After the President announced a deal to renew Bush-era tax cuts, investors drove the S&P above its 2010 closing high of 1225.
The decision on tax cuts removed a major source of uncertainty for financial markets. (It’s) a big deal," says Kim Caughey Forrest, equity research analyst at Fort Pitt Capital Group in a Reuters interview. "Investors really do like certainty, and they really do like certainty around taxes."
Not only did the S&P breakout, the Nasdaq also traded above its closing highs of the year and the the 10-year Treasury note rose to 3.08 percent, its highest level since July 13.
All are considered bullish signs. How should you position now?
Instant Insights with the Fast Money traders
I’m a buyer of the market, says Pete Najarian. Investors slammed the Vix and I’m seeing investors rolling out of December options and into January, February even May options. I interpret the move to mean they’re hoping to profit from a further run.
The bond market is a little soft, says Patty Edwards, which is largely bullish for stocks. I’ve been rotating from bonds into stocks, she adds. I’m also a buyer of the market.
I’m seeing calls trading at a 4-to-1 ratio versus puts in the ultra-short bond ETF , adds Pete Najarian. I also take that that as a bullish sign that money is rotating out of safe-haven bonds and into riskier stocks.
I think Tresurys are getting quite attractive at these yields, counters Steve Cortes. I see no signs of inflation. 3M said it can not pass along prices to consumers. I don’t think consumer inflation is a concern and as a result I find Treaurys attractive.
Rather than bonds, I’d look at stocks with strong dividend yields, counters Najarian – for example the chemical names. They’re still trading at valuations that are pretty cheap. But they deliver both yield and growth.
If you’re looking for a trade a lesser know aspect of the Obama deal also includes a tax credit on equipment, reminds Brian Kelly. It can now be written off more quickly. As a result I’d expect names such as Deere and Caterpillar to do well.
Meanwhile, the traders are also keeping a close eye on Citigroup after the Treasury said late Monday that it had sold its 2.4 billion Citigroup shares at $4.35 each, finally unwinding a stake that in April amounted to 27 percent of the bank.
The sale closed a long and difficult chapter for Citigroup, which took $45 billion in three government bailouts during the financial crisis. The bank has returned to profitability this year but has struggled to rebuild its reputation under the stigma of being a government ward.
"To finally get that albatross off from around its neck, it's a great thing," says Alan Villalon, a senior banking analyst at Minneapolis-based First American Funds, which owns Citigroup shares. "Now the concerns that the government is influencing business decisions can be gone," he adds
What’s the trade?
This may clear the way for Citi to be added to benchmarks, says host Melissa Lee and there could be a chase. According to Jeff Harte, in the third quarter 48.4% of Citi shares were owned by institutions. If all 2.4 billion shares were sold to institutions it would still be under-owned as compared to peers.
Citi Ownership: Institutional Holdings
Q3' 2010 - 48.4%
After Govt Sale, if 2.4b sold to Institutions: 56.5%
Source: Sandler O'Neill
I’m seeing upside calls trading at a 9 to 1 ratio versus puts, says Pete Najarian. That's suggests a bullish outlook in the options world.
With Citi I’d be careful, warns Steve Cortes. The government still holds warrants and preferred. By no means have they extricated themselves, entirely.
Shares of Talbots traded sharply lower on Tuesday after the retailer said it might report a fourth-quarter loss from continuing operations.
The company also said it will have to offer more discounts during the holiday season to sell more clothes and that inventory rose 11.3 percent from a year earlier, in part because of lower sales.
What’s the trade?
These developments remind me that you have to be very selective when you play retail, adds Patty Edwards.
My favorite retailer is Apple , says Brian Kelly. Ontop of being a great tech trade they're also the ultimate retailer.
Got something to to say? Send us an e-mail at firstname.lastname@example.org and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment, but not have it published on our Web site, send those e-mails to email@example.com.
Trader disclosure: On December 7th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Cortes Owns (TSN); Cortes Owns (TM); Cortes is short (LVS); Cortes is short (XRT) vs. (SPY); Cortes is Short Corn; Cortes is Long U.S. 2-Year Treasuries; Cortes is long USD vs. Mexican Peso, Canadian Dollar; Pete Najarian owns (YHOO); Pete Najarian owns (GDXJ) call spreads; Pete Najarian owns (TIE) calls; Pete Najarian owns (C); Pete Najarian owns (MS); Pete Najarian owns (SMH) call spreads; Pete Najarian owns (F) bonds; Pete Najarian owns (PFE)
Accounts Managed By Kanundrum Capital Own (DRYS) calls
Accounts Managed By Kanundrum Capital Own (C)
Accounts Managed By Kanundrum Capital Own (JPM)
Accounts Managed By Kanundrum Capital Own (WFC)
Accounts Managed By Kanundrum Capital Own (DE)
Accounts Managed By Kanundrum Capital Own (MON)
Accounts Managed By Kanundrum Capital Own (TBT)
Accounts Managed By Kanundrum Capital Own (GDXJ) calls
Accounts Managed By Kanundrum Capital Own (BG) calls
Accounts Managed By Kanundrum Capital Own (AAPL)
Accounts Managed By Kanundrum Capital Own (ARMH)
Accounts Managed By Kanundrum Capital Own (QCOM)
Accounts Managed By Kanundrum Capital Own (RDC)
Edwards Owns (AAPL) for clients
Edwards Owns (MSFT) for clients
Edwards Owns (MUB) for clients
Edwards Owns (GS) for clients
Edwards Owns (C) for clients
Edwards Owns (CME) for clients
Edwards Owns (AMZN) for clients
Edwards Owns (F) for clients
Edwards Owns (TTM) for clients
Edwards Owns (GLD) for clients
Edwards Owns (SLV) for clients
Edwards Owns S&P 500 for clients
Edwards Owns Nasdaq 100 for clients
CNBC.com with wires.