Top News  Shutterstock Stocks failed to hold early gains Friday, drifting into the close and ending the shortened week lower, as rising interest rates and profit taking in some of the largest tech names combined to dampen optimism. For the week, the S&P 500 fell 0.7% and the Nasdaq Composite lost 1.6%, while the Dow Jones fared better with a slight gain. Benchmark 10-year Treasury yields climbed above 1.35% Friday to the highest in nearly a year, as input prices for the Purchasing Managers manufacturing index reached the highest since April 2011. U.S. crude oil topped $60 a barrel before falling back, dropping 2% as wells slowly restarted in Texas following this week's big freeze | | Top News Shutterstock Stocks failed to hold early gains Friday, drifting into the close and ending the shortened week lower, as rising interest rates and profit taking in some of the largest tech names combined to dampen optimism. For the week, the S&P 500 fell 0.7% and the Nasdaq Composite lost 1.6%, while the Dow Jones fared better with a slight gain. Benchmark 10-year Treasury yields climbed above 1.35% Friday to the highest in nearly a year, as input prices for the Purchasing Managers manufacturing index reached the highest since April 2011. U.S. crude oil topped $60 a barrel before falling back, dropping 2% as wells slowly restarted in Texas following this week's big freeze | |
| Energy A deep freeze began enveloping large swathes of the U.S. on Monday, triggering rolling blackouts for at least 5M people from the upper Midwest to Houston. More than a million barrels a day of oil and 10B cubic feet of gas production also went offline, sending U.S. crude prices above $60 a barrel for the first time in more than a year and natural gas prices flying. Texas Governor Greg Abbott even banned sales of the state's gas beyond its borders, prompting Mexico to press the U.S. on guaranteeing natural gas supplies after power was interrupted earlier in the week. U.S. pipelines also declared force majeure, while massive refineries owned by Exxon Mobil (XOM) and Marathon Petroleum (MPC) halted production, threatening to reduce supplies of gasoline and diesel across the country.
Bigger picture: The cold snap tested Texas's highly decentralized electricity model, where power plants don't have incentive to build reserve capacity, but are rather paid for the energy that they sell. A widespread electricity failure ensued due to freezing natural gas pipelines, as well solar and wind generation that went offline due to the weather. Wholesale prices for electricity on the Texas grid even reached the price cap of $9,000 per megawatt hour (the average price is $25). Unlike utility monopolies in other states, electricity retailers in Texas compete fiercely for customer business and often tie prices to market conditions, but this has left power generators worried about sending out skyrocketing bills.
Go deeper: The recent developments is having Saudi Arabia consider reversing its production cuts when OPEC+ meets in March. The world's largest oil exporter surprised markets last month by unilaterally cutting 1M barrels a day of crude production in an effort to raise prices. "We are in a much better place than we were a year ago, but I must warn, once again, against complacency," Prince Abdulaziz bin Salman, the Saudi energy minister, told a conference on Wednesday. "The uncertainty is very high, and we have to be extremely cautious." (245 comments)    | |
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| Cryptocurrency The blistering rally in Bitcoin (BTC-USD) accelerated this week, with the crypto breaking above $50,000 for the first time in history. More are showing support for the alternative asset, with Mastercard (MA) and Bank of New York Mellon (BK) making it easier for customers to use cryptocurrencies. Tesla (TSLA) also invested $1.5B in Bitcoin and announced it would begin accepting the crypto for payment "in the near future."
Quote: "I think bitcoin is a much more stable asset class today than it was three years ago," said Michael Saylor, CEO of enterprise software firm MicroStrategy (NASDAQ:MSTR). "In March of 2020, you saw institutions start to arrive, and I think in 2021 you're going to see that trend continue. They're enthusiasts for bitcoin as a medium of exchange... but I personally believe that the compelling use case is a store of value."
MicroStrategy even announced Tuesday it will offer $600M in convertible bonds to buy more Bitcoin, and there is speculation that it offered a blueprint for Tesla's Bitcoin purchase after an exchange between Saylor and Elon Musk. MicroStrategy and Jack Dorsey's Square (SQ) already made splashy headlines last year after using corporate cash to buy Bitcoin. Meanwhile, Uber (UBER) CEO Dara Khosrowshahi said last week that the ride-hailing giant had discussed - but "quickly dismissed" - the idea of buying Bitcoin, although it is weighing whether to accept cryptocurrencies as payment.
With innovation, comes regulation: A well-defined crypto regulatory regime is urgently needed, according to SEC Commissioner Hester Peirce. "It's not only that there have been calls for clarity for some time and that a new administration brings the chance to take a fresh look, but it also is a moment where it seems others in the marketplace are also taking a fresh look." Peirce was labeled "Crypto Mom" after she publicly dissented on the SEC's decision in 2018 to reject a Bitcoin ETF application filed by Cameron and Tyler Winklevoss. She is currently serving her second term as one of the SEC's five commissioners. (122 comments) | |
| Media Australian lawmakers began debating legislation that would force Big Tech companies to pay publishers for news. The media bill, first introduced in December, would leave digital platforms on the hook for news content displayed in search results or feeds, meaning Google (GOOG, GOOGL) and Facebook (FB) would have to shell out cash to local media outlets and publishers for linking to their content. While the companies have both issued threats in the past (like pulling out of Australia), the two responded very differently on Wednesday.
Google - Pay for news. The tech giant announced a global deal with publishing group News Corp. (NWS) and is rushing to negotiate generous agreements with big and small Australian media companies. Seven West Media (OTC:WANHY) already reached a pact, its rival Nine Entertainment is reportedly close to a contract and Australian Broadcasting Corp. is in negotiations.
Facebook - Restrictions have been implemented. The decision will block Australians from sharing news stories and stop global users from sharing articles from Australian publishers. "The proposed law fundamentally misunderstands the relationship between our platform and publishers who use it to share news content," Facebook regional managing director William Easton said in a statement.
Outlook: While Australia singled out these two companies in its proposed law, other tech companies are watching the drama unfold. Stances will take on greater importance as governments around the world increasingly put their sights on Big Tech. Politicians in Europe and Canada have already signaled support for the moves by Australia, while global news publishers have voiced support for the system as well. (97 comments) | |
| Events Lawmakers on Thursday got their chance to grill all the big names caught up in the retail trading frenzy that occurred back in January. The hearing focused on "short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors," but was only the first of three planned by the House Financial Services Committee.
Backdrop: An army of day traders following WallStreetBets - the Reddit forum dedicated to "making money and being amused while doing it" - upended some market dynamics last month by taking aim at some heavily shorted stocks. They ran them up as a group, triggering short squeezes and causing some hedge funds like Melvin Capital to record billions of dollars in losses. The party came to an end after brokerages restricted trading on stocks like GameStop (GME) and AMC Entertainment (AMC), though Robinhood (RBNHD) took the most flak due to its communication about the events and delay in taking curbs off of "meme" trading.
Robinhood's Vlad Tenev - "Despite the unprecedented market conditions in January, at the end of the day, what happened is unacceptable to us." The decision to restrict buying, but not selling of stocks and options was "not influenced by anyone outside the company." Robinhood had to work with clearinghouses on capital requirement and eventually restricted buying in 13 stocks, and without those moves, users could have lost complete access to the market.
Melvin Capital's Gabe Plotkin - "I don't think you'll see stocks with the kind of short interest we saw prior to this year and data scientists will be watching message boards much more closely." He'd also abide by rules that would require disclosures of short positions.
Reddit's Steve Huffman - "A board like WallStreetBets wouldn't work without anonymity. Reddit's (REDDIT) user base is especially good at sniffing out stories that are not true and reiterates that it hasn't found any nefarious behavior."
Citadel's Kenneth Griffin - "With respect of 'payment for order flow,' we simply follow the rules of the road. If they change the rules... that's fine with us." The system has been an important source of innovation and drove the industry toward zero-dollar commissions, he added. "This has been a big win for American investors."
WSB's Roaring Kitty (a.k.a. Keith Gill) - "The idea that I used social media to promote GameStop stock to unwitting investors and influence the market is preposterous. My posts did not cause the movement of billions of dollars into GameStop shares." He also noted that some people lost money and "my heart goes out to them." "For me personally, yes, I do find it's [GameStop] an attractive investment at this point."
While there could be some SEC regulations down the road, they won't be coming from the House Financial Services Committee. If the SEC were to act, it could pursue a series of rules, ranging from short interest caps to taxing short-term bets, according to BofA analyst Michael Carrier. The commission may also move to review payment for order flows (PFOF) and pursue social media oversight to ward off potential market manipulation. Jefferies analyst Daniel Fannon meanwhile thinks the SEC could explore greater investor education around derivatives and risk management or increase costs for leverage services. (75 comments) | |
| Economy The stock market record highs fizzled somewhat this week, with the S&P 500 falling for a third straight day on Thursday. Fears of inflation may be at work amid concerns that if all the stimulus being pumped into the financial system works (i.e., people start spending, shopping etc.), that could begin pushing up prices. That may be risky for stock investors as money flows back into the rising yield bond market. In fact, a sizable selloff has been seen in the U.S. government bond market over the past six weeks, with yields on the 10-year Treasury note climbing from 1% in early January to 1.3% this week (yields move inversely to price).
Quote: "We think it's very important to have a big stimulus package [that] addresses the pain this has caused - 15M Americans behind on their rent, 24M adults and 12M children who don't have enough to eat, small businesses failing," Treasury Secretary Janet Yellen told CNBC. "I think the price of doing too little is much higher than the price of doing something big. We think that the benefits will far outweigh the costs in the longer run."
Asked whether the surge of federal spending could prompt a sustained rise in inflation, Yellen responded that it was a risk, but added that inflation has been very low for many years and the Fed could always mitigate that risk by raising rates. According to Speaker Nancy Pelosi, the House aims to pass its $1.9T coronavirus relief plan before the end of February to beat a deadline on extending key unemployment programs.
Go deeper: Yellen also said the White House will likely propose a second economic recovery package later this year that would include spending on longer-term investments like infrastructure, renewable energy, education, job training and research and development. The proposal would also include tax increases on corporations and wealthy Americans that would "phase in slowly over time." During his campaign, President Biden proposed raising the corporate rate to 28% from the current 21% (prior to President Trump's tax cuts in 2017, the rate was 35%). | |
| U.S. Indices
Dow +0.1% to 31,494. S&P 500 -0.7% to 3,907. Nasdaq -1.6% to 13,874. Russell 2000 -1.1% to 2,264. CBOE Volatility Index +10.4% to 22.05.
S&P 500 Sectors
Consumer Staples -1.1%. Utilities -2.%. Financials +2.8%. Telecom -0.9%. Healthcare -2.5%. Industrials +0.7%. Information Technology -1.9%. Materials +0.9%. Energy +3.1%. Consumer Discretionary -0.5%.
World Indices
London +0.5% to 6,624. France +1.2% to 5,774. Germany -0.4% to 13,993. Japan +1.7% to 30,018. China +1.1% to 3,696. Hong Kong +1.6% to 30,645. India -1.3% to 50,890.
Commodities and Bonds
Crude Oil WTI -0.7% to $59.04/bbl. Gold -2.2% to $1,783.4/oz. Natural Gas +5.8% to 3.082. Ten-Year Treasury Yield -0.8% to 135.49.
Forex and Cryptos
EUR/USD +0.01%. USD/JPY +0.49%. GBP/USD +1.24%. Bitcoin +18.5%. Litecoin +6.5%. Ethereum +10.7%. Ripple -11.3%.
Top Stock Gainers
Breakwave Dry Bulk Shipping ETF (NYSEARCA:BDRY) +26%. Transformational Data Sharing Amplify ETF (NYSEARCA:BLOK) +19%. G-X Copper Miners ETF (NYSEARCA:COPX) +15%. Etfmg Travel Tech ETF (NYSEARCA:AWAY) +10%. Northshore Global Uranium Mining ETF (NYSEARCA:URNM) +9%.
Top Stock Losers
SPDR Kensho Clean Power ETF (NYSEARCA:CNRG) -9%. Wilderhill Clean Energy Invesco ETF (NYSEARCA:PBW) -9%. Solar Invesco ETF (NYSEARCA:TAN) -9%. Global Clean Energy Ishares ETF (NASDAQ:ICLN) -8%. Global X Cleantech ETF (NASDAQ:CTEC) -8%.
Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section. | |
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