Trader Talk

No respect! Traders unimpressed by 'boring' S&P trade

Pisani: Bond market is stabilizing stocks

Boring tape? I don't think so.

The S&P 500 hit an historic closing high yesterday, despite complaints that the tape was "boring" and that it did not take out the intra-day high of 1,813. If this is boring, I'll take it any time.

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When the S&P appeared to be stalling out at 1,800 a couple weeks ago, there was wailing and gnashing of teeth that the rally was over. Now that we are at 1,808, traders are still complaining.

Let them have at it. Other than a brief immaterial dip last week, we have been straight up for two months, even with various Federal Reserve officials saying its time to begin tapering bond purchases. What will this mean for stocks?

I think stocks will be in for a few rocky moments in first quarter of 2014, but more traders are making the argument that a modestly improving economy--coupled with a strong message from Janet Yellen that tapering is not tightening--may make up for the reduction in quantitative easing (QE).


1) Hilton (HLT) will price its initial public offering (IPO) tomorrow, 112 million shares between $18-$21. A couple points to consider:

1) they're BIG: in fact they are the biggest, with over 4,000 hotels, 672,000 rooms, and many more under construction; 2) like many IPOs, Blackstone is floating only a small part of the company (roughly 13 percent) so there will be a huge stock overhang in the remaining shares of about 850 million. The lockup period for the insiders is 180 days, and; 3) the earnings are very concentrated.

Owned assets generate 39 percent of earnings before interest, taxes, depreciation and amortization (EBITDA). That could create volatility if one or more of those hotels were impacted by some circumstance.

It's been a good year for hotel stocks. The Dow Jones Hotel Index is up about 32 percent this year, handily outperforming the S&P 500.

2) Toll Brothers, the biggest high-end home builder, reported earnings and revenues above expectations. Orders were up a modest six percent year over year. They raised prices last quarter, but admitted that raising prices, along with the uncertainty in Washington, "contributed to a leveling of demand." Toll also noted that in the most recent five weeks, contracts have been flat compared to last year.

3) Odd lots: a Yesterday was the first day that odd lots (orders for less than 100 shares) were reported to the consolidated tape. This is a strange omission that has been a minor issue for decades. Most countries require all trades to be reported, regardless of size. Not in the U.S., where exchanges were only required to report round lots (100 shares).

Has this failure to report odd lots distorted volumes? The theory has been that higher priced stocks--stocks that are priced in the hundreds of dollars, like Google at $1,000--would have far more odd lots traded than a stock like, say, Cisco at $21? Additionally, would reporting these odd lots result in a rise in volume?

Yesterday was the first day exchanges were required to report all trades, including odd lots. According to Credit Suisse, stocks priced above $300 saw 70 percent higher volume yesterday compared to the prior 30 days, on average. Across the whole market, the average increase was three percent.

I will keep an eye on this. Credit Suisse estimates that 20 percent of all trades are executed in odd lots, and that the change could boost total reported volume by six percent.

By CNBC's Bob Pisani