Wall Street Breakfast: What Moved Markets

- U.S. stock indexes closed higher ahead of the Christmas break with the S&P 500 carving out a new high. Investors took a generally positive stance on the latest economic data and some anxiety over the impact of the Omicron COVID variant on global economies was tamped down. On the COVID treatment front, Merck (NYSE:MRK) received authorization from the U.S. Food and Drug Administration for its at-home COVID-19 drug one day after Pfizer (NYSE:PFE) was approved for use of its own drug. Brent crude futures snapped a three-day rally on Friday on light trading, but ended the week higher. At the end of the four-session week, the S&P closed at an all-time high of 4,725.72, while the Dow ended just a bit short of 36K. For the year, the S&P 500 has posted 35 new 52-week highs and the Nasdaq Composite has recorded 62 new highs.

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Top News Shutterstock U.S. stock indexes closed higher ahead of the Christmas break with the S&P 500 carving out a new high. Investors took a generally positive stance on the latest economic data and some anxiety over the impact of the Omicron COVID variant on global economies was tamped down. On the COVID treatment front, Merck (NYSE:MRK) received authorization from the U.S. Food and Drug Administration for its at-home COVID-19 drug one day after Pfizer (NYSE:PFE) was approved for use of its own drug. Brent crude futures snapped a three-day rally on Friday on light trading, but ended the week higher. At the end of the four-session week, the S&P closed at an all-time high of 4,725.72, while the Dow ended just a bit short of 36K. For the year, the S&P 500 has posted 35 new 52-week highs and the Nasdaq Composite has recorded 62 new highs.       Automotive Tougher standards The battle over auto industry emissions returned on Monday after the Biden administration raised fuel-efficiency standards for passenger cars and light-duty trucks to a fleetwide average of 55 miles per gallon by model year 2026. That's a mark up from the 43 mpg standard set by the Trump administration for that year and well above the current 2021 model year average of 40 mpg. The standards will curb pollution from the transportation sector, which is the country's No. 1 source of greenhouse emissions. Estimates: The EPA forecasts the new rules will save U.S. drivers between $210B and $420B in fuel costs through 2050. It will also save each buyer about $1,000 over the lifetime of their vehicle from model year 2026, even after factoring in higher purchase prices for cleaner vehicles. "For automakers, this is the future," said Ramón Cruz, president of the environmental organization Sierra Club. "If you want to remain competitive you have to do this." Outlook: EV startups have been the rage this year as the industry transitions to electric vehicles. Mainstream players are also joining the movement, with Ford (NYSE:F) planning for 40% of global vehicle sales volume to be electric by 2030. While the EPA feels the industry will be able to comply with its new standards without more federal funding from Congress, it would go a long way to help. New funding for a national EV charging network was included in the $1T infrastructure bill passed this fall, though the $20B in tax credits for EV buyers - included in the Build Back Better Act - may have a harder time getting past the Senate after West Virginia's Joe Manchin rejected the plan. (67 comments)       Earnings Just Do It. Nike (NKE) reported a double beat for the fiscal second quarter after the close on Monday, prompting shares to advance 3.5% AH to $162.50. Strength was seen in North America, Nike's biggest market, where sales climbed 12% and represented the highest growth of all geographies. Gross margin also increased 280 bps to 45.9%, led by margin expansion in the Nike Direct business, which was driven by lower markdowns, a higher mix of full-price sales and changes in foreign exchange rates. Some challenges: Sales in Greater China fell 20%, though the region has recently taken on a bigger focus for investors and remains key to the sneaker giant's future growth. There was also lost production from Vietnam factory closures due to COVID-19 and higher macro input costs. Supply chain expenses for the fiscal year are expected to be higher than Nike had anticipated three months ago, but the company did not disclose a specific estimate. Nike continues to expect revenue to grow mid-single digits vs. the prior year, in line with its previous outlook. For Q3, the firm anticipates revenue to grow low-single digits (consensus growth of 2.29%) vs. the prior year. "We are raising our gross margin guidance to expand 150 basis points versus the prior year. We expect to continue benefiting from exceptional demand against the backdrop of lean marketplace inventory". Into the Metaverse: "We'll invest... to deliver next-generation experiences," CEO John Donahoe said on a post-earnings conference call. He was referring to last week's acquisition of the virtual sneaker company RTFKT (pronounced "artefact"), with which it plans to "extend Nike's digital footprint and capabilities." According to its website, RTFKT makes "NFT collectibles and memes, while merging realities in fashion and gaming." (7 comments)       Covid A fourth dose? Israel announced it would become the first country in the world to administer a fourth COVID-19 vaccine, which would give "greater protection in the face of Omicron." The first eligible group to receive the vaccine will be people aged 60 and older, as well as the immunocompromised and medical personnel. As for the time frame, the fourth shot will be recommended after waiting at least four months from the third dose (almost all Israelis have received the Pfizer-BioNTech (PFE, BNTX) vaccine. Backdrop: Israel was one of the first nations to vaccinate its population early this year and then carried out the world's first booster campaign over the summer when Delta raged across the country. To date, about 63% of the population of 9.3M has had two doses (a similar percentage seen in the U.S.), while more than 4.1M Israelis have received three doses of a coronavirus vaccine. Note that about a third of Israel's population is under the age of 14 (compared to 18% in the U.S.), with most of the group not eligible for a vaccine until it was approved for 5-11 year-olds last month. "The world will follow in our footsteps," Prime Minister Naftali Bennett tweeted about the fourth booster campaign. The government's ministerial committee tasked with driving policy on the pandemic also decided on a number of new measures in the wake of the new wave of Omicron infections. The rules will mostly target crowd sizes in shopping centers, as well as proof of full vaccination for entry to stores that are more than 100 square meters (1,076 square feet). Israel is also quickly expanding its list of "red countries," or high-risk travel destinations, to vast swaths of Africa, Europe and North America, with the latest government data showing 341 confirmed cases of Omicron in the country.

Over in the U.S.: In late October, the CDC issued guidance that said immunocompromised people may receive a fourth COVID vaccine dose starting next year, but that could be a harbinger for the rest of the population. While the fourth jab for the immunocompromised should come at least six months after the third dose, the demographic is encouraged to talk to their doctors to determine if it is necessary. According to the CDC, about 9M Americans (2% of the population), fall into the category of "moderately and severely immunocompromised," like those who are in active cancer treatment, certain organ transplant and stem cell recipients, people with advanced or untreated HIV, and those who take high-dose corticosteroids or drugs suppress their immune systems. Keep in mind that the CDC's definition of fully vaccinated is still two doses, though it highly recommends a booster for anyone over the age of 18. (236 comments)

     

Financials

Options takeover

With the pandemic limiting many choices this year, investors dove into options. Bad pun, but the statistics are astounding. Check out the following few data points:

• Around 39M options contracts have traded daily on average this year, rising 35% from 2020 and the highest level ever - Options Clearing Corp.

• Retail investors represent more than 25% of total options trading activity due to access via commission-free brokers - Alphacution Research Conservatory.

• The average daily notional value (volume multiplied by spot price) of traded single-stock options climbed to more than $450B in 2021, compared with $405B for stocks - Cboe Global Markets.

What's fueling the surge? Hot trading apps and social media hype has seen retail crowd pour into the market since competition between brokerages eliminated trading fees in 2019. While stocks were the initial focus, much of the attention today centers around options, which allow traders to notch big returns (or losses) without having to actually purchase shares. Besides the leverage, many investors are also using derivatives as a hedge, such as protecting their portfolios against sentiment changes - a good example of this was the recent Fed meeting.

It's also been a big win for the brokerages, which are scoring some big bucks off the options rage. Popular brokerage Robinhood (NASDAQ:HOOD) even generated $164M from options trading in the third quarter, more than triple its transaction-based revenue from traditional stock trading. Activity has also been prominent in the so-called meme stocks, which initially created massive short squeezes in names like GameStop (GME) and AMC (AMC), but eventually created a swarm trading strategy of its own.

Some caution: The increased engagement is attracting the attention of regulators like the Financial Industry Regulatory Authority. Wall Street's self-regulatory arm is considering whether changes to the options rules may be warranted, including regulations around options account approvals, supervision and margin requirements. FINRA's request for comment will be published in the coming weeks to solicit insight from exchanges and brokers about options trading and the risks involved. (13 comments)

     

Legislation

Student loans

In the wake of the Omicron variant spreading rapidly across the globe, the White House is extending the pause on federal student loan repayments by an additional 90 days until May 1, 2022. "We know that millions of student loan borrowers are still coping with the impacts of the pandemic and need some more time before resuming payments," President Biden said in a statement, despite the unemployment falling to 4.2%. It's even less among college graduates with a bachelor's degree, with the rate tumbling to 2.9% in November.

Backdrop: The moratorium began in March 2020, when former President Trump signed the CARES Act into law, pausing payments through September 2020 and eliminating interest rates for the about 42M borrowers. Trump later took executive action to extend the deferral period through January 2021, while Biden signed another order when he came into office, continuing it through Sept. 30, and then eventually Jan. 31, 2022. At the time, the Education Department said that it would be the "final extension," while a "definitive end date" would reduce the risk of delinquency and defaults once the payments restart.

Meanwhile, Congressional Democrats like Senate Majority Leader Chuck Schumer and Massachusetts Sen. Elizabeth Warren have been pressuring Biden to take executive action to wipe out up to $50K in student loan debt for all borrowers. While he has gone on record saying he doesn't believe a president has the authority to cancel student debt unilaterally, Biden would support Congress passing a bill to cancel $10K in debt for each borrower. About 62% of voters support some form of student loan forgiveness, according to a recent poll by Morning Consult, but ideas differ about how much debt should be forgiven and for whom.

Go deeper: The Federal Reserve estimated that Americans owed $1.75T in student loans in the third quarter of 2021, with the average debt around $40,000 per borrower. Related student loan stocks include Sallie Mae (NASDAQ:SLM), Navient (NASDAQ:NAVI) and Nelnet (NYSE:NNI). (28 comments)

     

U.S. Indices
Dow +1.7% to 35,951. S&P 500 +2.3% to 4,726. Nasdaq +3.2% to 15,653. Russell 2000 +3.3% to 2,245. CBOE Volatility Index -16.7% to 17.96.

S&P 500 Sectors
Consumer Staples +0.6%. Utilities +0.2%. Financials +1.1%. Telecom +2.5%. Healthcare +1.4%. Industrials +1.8%. Information Technology +3.3%. Materials +1.2%. Energy +2.4%. Consumer Discretionary +3.8%.

World Indices
London +1.4% to 7,372. France +2.3% to 7,087. Germany +1.5% to 15,756. Japan +0.8% to 28,783. China -0.4% to 3,618. Hong Kong +0.1% to 23,224. India +0.2% to 57,124.

Commodities and Bonds
Crude Oil WTI +4.% to $73.72/bbl. Gold +0.3% to $1,810.1/oz. Natural Gas -1.7% to 3.626. Ten-Year Treasury Yield -1.% to 130.5.

Forex and Cryptos
EUR/USD +0.75%. USD/JPY +0.6%. GBP/USD +1.18%. Bitcoin +11.1%. Litecoin +13.1%. Ethereum +5.7%. XRP +19.2%.

Top Stock Gainers
Society Pass Incorporated (NASDAQ:SOPA) +354%. Biofrontera Inc (NASDAQ:BFRI) +91%. Bluerock Residential Growth Rei (NYSE:BRG) +85%. Biondvax Pharma ADR (NASDAQ:BVXV) +81%. Galera Therapeutics Inc (NASDAQ:GRTX) +69%.

Top Stock Losers
Allakos Inc (NASDAQ:ALLK) -87%. Adagio Therapeutics Inc (NASDAQ:ADGI) -39%. Aldeyra Therapeu (NASDAQ:ALDX) -38%. Zhangmen Education Inc ADR (NYSE:ZME) -36%. Summit Therapeu ADR (NASDAQ:SMMT) -36%.

Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.

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