We Want Calm, but That's Still Not Happening
It's easy to say the markets are calm Friday, but it's not exactly correct. S&P 500 futures have swung in a 33-point range overnight—that is pretty volatile.
Markets in France, Italy, Spain, and Belgium imposed various bans on short-selling, despite every piece of evidence that indicates that such bans do nothing.
1. A little more on high-frequency trading and who to blame. We've had a healthy debate on the role of high-frequency trading in all the craziness this week. I think level heads realize that there are plenty of other players impacting the markets.
When you have massive changes in Treasury yieldsand currency relationships, when central banks all over the world are making or contemplating changes in policy, is it any wonder that you get big volume in the stock market?
Is it any wonder that you would see massive trading and hedging (shorting, options activity) from investment banks, institutional traders like pension and mutual funds, and sovereign wealth funds all over the world?
Is it any wonder that retail investors pulled $14.4 billion from equity funds—mutual funds and exchange-traded funds (ETFs)—this week, according to Lipper, the largest pullout since May 2010?
And we want to wave our hand and say "machines are doing this to us!" Please.
One more time: I don't like high-frequency trading. I don't like it because it reacts more quickly than humans and devalues human thinking, and because—I can't prove this, but I believe it—I think that on the margins they exacerbate price swings on high-volatility days.
But I'm not going to start blaming them for all our problems. Just like I won't give them credit for the massive rally we had last year.
Finally, I've been asked frequently about the role of leveraged ETFs in this week's activity. The answer: I don't know how much impact they are having. I was one of the earliest backers of ETFs, including commodity ETFs, and I remain so. But leveraged and inverse funds do make me nervous, and I hope we will see more studies on their impact on trading. ?
2. A big increase in buybacks and insider buying has gotten much attention this week, and are giving traders some hope that we might be finding a bottom. More buyback programs announced Friday:
Wyndham increases its stock repurchase program by $500 million, about 10 percent of its current market cap.
Newell Rubbermaid announced a $300 million buyback program, representing 8 percent of its market cap.
TiVo unveiled a $100 million repurchase plan, worth nearly 11 percent of its current market cap.
3. Could the markets end the week in positive territory? After the roller coaster ride so far this week, the S&P 500 is down 2.2 percent and the Dow industrial average is down 2.6 percent this week, while the Nasdaq Composite Index is just 1.6 percent away from turning in a gain. Half of the 10 S&P sectors—materials, utilities, technology, health care, telecom—is less than 2 percent away from weekly gains, too.
4. JCPenney is up 4 percent after reporting earnings of 7 cents a share (including restructuring charges) vs. 9 cents a share consensus. A small 1.5 percent gain in same-store sales offset a decline in margins from a "softer than anticipated selling environment…and higher level of promotional activity."
Same-store sales in the current quarter are seen up 2 percent to 3 percent, with earnings expected between 15 cents a share and 20 cents a share (including restructuring charges of 5 cents a share) vs. 25 cents a share consensus.
5. Nordstrom rises 5 percent after beating estimates 80 cents a share vs. 74 cents a share consensus). Same-store sales rose a solid 8 percent on strong response to a number of its big sale events in the quarter. For the year, the department store raises its same-store sale forecast to up 4 percent to 6 percent, and boosts its earnings per share outlook to $2.95 cents a share to $3.10 cents a share vs. $3.06 cents a share consensus.